Carolyn Goh asked 6 months ago
Hi Victor,
Under insider trading in the management quadrant, it is mentioned that share buy-back by management is generally a good thing as it showcases the management’s confidence in the company. However, I don’t fully understand why a buy back at a low price is better than at a high price. Has this to do with the “signals” it would give to analysts/market if the shares are bought back at a high price and that the management could be intentionally driving up the share price?
Rgds,
Carolyn
Victor Chng answered 5 months ago
Hi Carolyn,
It is as what Jieren had mentioned above. Do note that when management buyback shares, they are using shareholder money, hence buying your share back lower benefit the existing shareholders that are still holding on to the shares.
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I would think that buying back at a low price indicates some form of turnaround/boost, or generally a positive sentiment or expectation in the performance of the company ahead.
Also, buying back shares at a low price when it is undervalued indicates better capital allocation behavior of the management. Purchasing share prices at overvaluation is generally a more unwise and unsound financial decision, it is like not wanting to purchase $1 for 50cents but you would love to purchase $1 for $2 instead.
Thanks JR