This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Ask TheStreet: Buybacks

Ask TheStreet is designed to answer questions about the market, strategies, and investment methods. Please email us to ask a question, but keep in mind that we cannot offer specific investment advice.


Reader: What happens to the shares when a company buys back its shares? Are they still "marketable," as in selling them back into the market? --T.B.

Gregg Greenberg: When a company repurchases its shares in the open market, those shares are not lost forever like sunglasses at the beach or socks in a dryer. Instead, they turn into what is known as treasury stock, which the company can use for a number of purposes, including boosting earnings per share, increasing internal control of the company or filling up its employee stock option or pension plans.

A stock buyback announcement is usually greeted with smiles by investors because it lowers the total number of outstanding shares, thereby increasing earnings per share. Outstanding shares are those that have been issued and are in the hands of the public.

Since treasury stock is issued but not outstanding, it is not taken into account when calculating a company's earnings per share or dividends. With fewer shares outstanding, simple math dictates that earnings per share will increase after a stock buyback, provided the company's earnings stay the same or increase.

A potential downside to a stock buyback is the question if buying back stock is the best thing to do with the company's cash. Maybe buying another company or building a plant is the better option. Also, a stock buyback reduces the public's voice in shareholder votes.

But investors can always vote with their feet if they don't like the company's decision-making by selling their shares.

Reader: Recently, Jim Cramer has been recommending a lot of stocks that trade on foreign exchanges. Is there a discount broker that will let you do this? How about one that will let you do it online? -- M.L.

GG: Unfortunately, most discount brokers do not allow their customers to buy and sell stocks on international exchanges just yet. So if the "Mad Money" man highlights a stock that trades solely on a foreign exchange -- not an ADR -- you may be out of luck. (ADRs, or American Depositary Receipts, are foreign stocks that are listed on U.S. exchanges.)

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,329.72 +138.35 0.80%
S&P 500 2,006.03 +3.87 0.19%
NASDAQ 4,637.68 -0.3140 -0.01%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs