Quick thread on understanding buybacks.
1) Why is it done:
If a company is cash rich and has no foreseeable deployment opportunity in its own business it can go for big dividends or use that money to buy back its own shares (1/8)
#InfosysBuyback
#InfosysQ4
1) Why is it done:
If a company is cash rich and has no foreseeable deployment opportunity in its own business it can go for big dividends or use that money to buy back its own shares (1/8)
#InfosysBuyback
#InfosysQ4
2) How does buyback help:
When a company purchases its own shares, its outstanding free float in the market reduces. So just assume if a company had 100 shares in the market and it takes back 10 from the market, the available base is now only 90 shares. (2/8)
#investing
#BuyBack
When a company purchases its own shares, its outstanding free float in the market reduces. So just assume if a company had 100 shares in the market and it takes back 10 from the market, the available base is now only 90 shares. (2/8)
#investing
#BuyBack
3) How does reduced equity base help:
Suddenly all the key ratios of the company will start looking better. EPS (Earnings/Outstanding shares) will rise as the denominator will decrease. PE (Price/EPS) ratio will look more attractive as the EPS no increases
#EPS #earnings #Q4FY21
Suddenly all the key ratios of the company will start looking better. EPS (Earnings/Outstanding shares) will rise as the denominator will decrease. PE (Price/EPS) ratio will look more attractive as the EPS no increases
#EPS #earnings #Q4FY21
4) Overall buyback is a positive move to an extent that it improves key fundamental metrics & makes the stock look cheaper on valuations. It can also be construed negatively in some scenarios showing that management has no cash deployment opportunities or business expansion plans
5) Tender offer: Most used way of buyback where if the CMP of #stock is say 1500 - company might float an offer of 1750 asking all shareholders to voluntarily tender their shares. It's done pro-rata on how much equity Co is willing to buyback & how many #investors tender shares.
6) Open Market buyback:
Company will buy the shares from market in normal trades at the prevailing price. They generally cap the upper band and don't buy beyond that price. This is what Infosys is planning to do.
#InfosysQ4 #results #financialeducation #investingtips (6/8)
Company will buy the shares from market in normal trades at the prevailing price. They generally cap the upper band and don't buy beyond that price. This is what Infosys is planning to do.
#InfosysQ4 #results #financialeducation #investingtips (6/8)
7) Market sentiments:
Mostly tender offer buybacks are positive signals for a stock price and often results in prices inching closer to the offer price which is at premium to CMP. This shows confidence of Management towards a min floor price for their stock. (7/8)
#stockmarkets
Mostly tender offer buybacks are positive signals for a stock price and often results in prices inching closer to the offer price which is at premium to CMP. This shows confidence of Management towards a min floor price for their stock. (7/8)
#stockmarkets
8) Open market buybacks though will ultimately improve financial nos of the company but is generally not construed very positively. It infact shows that management is not willing to buy the stock above a particular price (offer price) and could be negative in the near term (8/8)
• • •
Missing some Tweet in this thread? You can try to
force a refresh
