Stock Buyback

• Can be a good strategy when management thinks that its stock is undervalued
• Considered to be a short-term strategy 
• Can boost earnings in the short term, but doesn't help the company grow total revenue or profits
• Compared to investing the cash in longer-term projects, facilities, etc.
• Buybacks are like stock splits: What they giveth in share reduction, they taketh back in shrunken balance sheets

Stock Buyback Conflicts of Interest

• Many management teams are compensated with stock options
• Management is thus incentivized to increase the stock price - so their options are worth more
• Mangement may use buybacks as a way to financially engineer a higher share price (even if the company is not better off)
• Buying Back shares can increase EPS and Sock Price
• However, buying back shares may not be the best use of cash or help a company earn more
• This can be harmful long-term if management buys back shares at elevated levels
• Alternatives could be dividends or reinvesting in the business

2010s Buyback Popularity

• In the wake of quantitiate easing and low interest rates, stock buybacks because very popular
• Many companies issued low-rate debt to buy back shares and boost stock prices
• Concern:  If rates rise, it will be expensive for companies to pay back or refinance these debts!