People keep fretting that the increase in stock price is being driven by buybacks, but I don't get it.
Say I have a company, Penguins Inc..
1 million shares outstanding.
$10 price per share.. so the market thinks the total company is worth $10 million
The corporation has a pile of $1 million cash they want to get rid of before inflation eats it. So they do buybacks.
100,000 shares get bought and annihilated. That $1 million cash is now gone.
The company's market cap ought to be $9 million now.. because it's the same company as when it was valued at $10 million, but now it's missing a $1 million pile of money.
There are now only 900,000 shares outstanding. $9 million divided by 900,000 is $10.. so the price per share should remain the same.
What am I missing?
Submitted October 17, 2018 at 10:10AM by FilthyWishDragon https://ift.tt/2CQeO08
