Glossary · Defined term
Stock buyback
A stock buyback is a program in which a company repurchases its own shares, reducing the number outstanding. Definition plus a worked example.
Last updated Oct 2, 2026
What it means
A stock buyback is a program in which a company repurchases its own shares on the open market, reducing the number of shares outstanding. With fewer shares dividing the same earnings, earnings per share rise mechanically, which is one reason investors often welcome buybacks. They are also a way to return cash to shareholders, alongside dividends, and they signal that management considers the shares reasonably priced. But buybacks do not make the underlying business more valuable by themselves, and cash spent on repurchases cannot fund growth or cushion downturns. Critics note that buybacks can flatter per-share metrics without improving the company.
An example
For illustration, a company earns $100 million with 50 million shares outstanding, or $2.00 per share. It buys back 5 million shares, leaving 45 million, so the same $100 million of earnings now works out to about $2.22 per share, an 11 percent increase achieved without earning a dollar more. The business is unchanged; the per-share math improved.