What is likely to happen to stock prices when companies engage in stock buybacks?

When companies engage in stock buybacks, they repurchase their own shares from the market. This action tends to reduce the number of shares outstanding, which can lead to an increase in earnings per share (EPS) since the company’s net income is now distributed over fewer shares. This often leads to a positive perception among investors, as a higher EPS can signal a company's financial health and profitability.

Moreover, stock buybacks can indicate that the company believes its shares are undervalued, signaling confidence in its future performance. As a result, demand for the remaining shares can increase, driving stock prices upward. The reduction in supply combined with potential optimism from investors generally creates upward pressure on the stock price.

While there are various factors that can influence stock prices, the typical outcome of stock buybacks is an increase in prices, particularly when market conditions are stable or favorable. Consequently, this aligns with the rationale behind why companies undertake such actions, as they aim to boost shareholder value and capital markets' perception of their stock.