SHARETIPSINFO >> Articles Directory >>What are the pitfalls of stock buybacks?


You must have heard that stock markets are never still. Stock markets are always on the move. This is the very reason why the share market is said to be volatile. It is very difficult (almost impossible) to predict the stock market. Sometimes it just booms and along with it the economy rises and at other times, it just collapses. There is no warning! Whenever there s a boom in the stock market, people like  to call it a bull run in the stock market. And when it is falling, people call it a bear run happening in the stock market. You should also know what are the pitfalls of stock buybacks?

What is a stock buyback condition?
A stock buyback condition is one where a company or corporate entity buys its own stocks in the stock market. The shares which have been purchased by the company through the stock buyback condition are considered an asset and given a new title. There are many advantages as well as disadvantages of stock buybacks. The only solution is for you to be very vigilant and actively involve yourself in learning all about the company’s strategy as you possibly can. You should know which stocks would give you ultimate profits in the market.

The pitfalls of stock buybacks 
The disadvantage of a stock buyback is a total control of your profits by the company involved. When a company utilizes the stock buyback option, automatically there is a visible improvement to its Earnings Per Share or EPS. To rate a company’s stock and suggest the same to the investors, the financial analysts will first thoroughly analyze the EPS of that company. In many instances, the analysts might give a company’s stocks a higher EPS rating if they presume that there is an increase in the number of outstanding shares before a stock buyback. Time it correctly and the companies or corporate entities will not waste a split second in involving themselves in share buybacks in an effort to outdo the general collective estimates which were obviously outlined on an increasing ratio of outstanding shares. It is for you to be vigilant and stay vigilant always. Especially watch out for and steer clear of companies that make an announcement that they are going to use the buyback option just before they announce the earnings.  

Do a lot of research
You will stand to make much better profits if the buyback percentage is much better. But companies are never lenient enough to inform buyers about the buyback percentage while they are announcing their intent on buying back their stocks. The only solution for you is to do a lot of research and work out precisely how much percentage of stock buyback has really occurred. Do not ever assume that a large percentage will have been achieved as soon as a large buyback has been announced. Remember that if you fail to make any good research then you might have to lose a lot of your money investing in the wrong stocks. But you would be in a very profitable situation in case you can make a very good study of the various stocks in the market.
As you get more experience in the stock market you will understand that companies are never as transparent as they make themselves out to be. You will thus know that for sure, there is going to a very big degree of difference between a buyback announcement made by a company and an actual buyback by the company. Such an announcement will make sure to sky rocket the price of the company’s stock but then again there are very few companies that translate their announcements into actuality. As for you, you can always be vigilant to keep yourself inactive till the company has made the actual implementation of the buyback a reality.

Thus, you know what are the pitfalls of stock buybacks? You have to know how to make a good study of the sensex so that you can be in a much better position to invest in the market. You would be glad to find that you have taken the best steps towards making a huge profit in the market.

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