Why might a company decide to buy back its own shares?

A company may decide to buy back its own shares mainly because it believes that the stock is undervalued in the market and aims to boost its earnings per share (EPS). When a company repurchases its stock, it reduces the number of shares outstanding in the market. This reduction can lead to a higher EPS since earnings are now distributed over fewer shares. Investors often view an increase in EPS positively, as it can signal improved financial health and may attract more investors.

Additionally, a buyback can indicate to the market that the company has confidence in its own future prospects. This often creates a perception of strength in financial performance, potentially leading to an increase in stock price.

While there are various motivations a company might have for repurchasing shares, the primary rationale, especially in the context of believing the stock is undervalued, is focused on enhancing shareholder value and reinforcing market confidence in the company's future.