| The most direct act that a company can do to | | | | The first reason is if the company wants to shore up |
| increase the price of its stock is to buy up its own | | | | confidence in the company. Company management |
| shares in the open market. The best penny stock | | | | wants to show investors that they have confidence |
| companies often launch buy back programs when | | | | in their business plan and stock... and continue to |
| they seek to diminish the number of shares | | | | believe it is a solid long-term investment. It one thing |
| outstanding (the number of shares available in the | | | | for company insiders to announce news such as |
| market). The share bought in the open market can | | | | expected new earnings... and it is another thing for |
| be retired. Retired shares are no longer counted as | | | | them to put their money where their mouth is. |
| outstanding. Investors will value the remaining shares | | | | The second reason a company may institute a buy |
| at a higher price. | | | | back is to push up the price of a stock. The |
| As an example: ABC Company has a $5 million | | | | company knows that investors will translate the |
| market cap that has 10 million shares outstanding. | | | | buying of a stock as a positive sign on the value of |
| This would give ABC a price per share of.50. With a | | | | the stock. However, this can be done at investor's |
| corporate buy back of shares the outstanding | | | | expense. A company stock with no trading volume |
| number of shares would be reduced. Supposing ABC | | | | might start buying up the stock to push the price of |
| retired 2 million shares... that would leave 7 million | | | | its own stock up. However, this kind of activity is |
| shares outstanding. If the market cap remains at $5 | | | | monitored by regulators, but investors still need to be |
| million, it has no reason to go down since investors | | | | careful. |
| still have the same valuation for the company. Then | | | | In conclusion, make sure you conduct complete due |
| each share would now be worth.71, which is.21 more | | | | diligence when you see a company initiate a buy back |
| than they were worth prior to the buy back. | | | | of its own stock. However, this can be a very good |
| There are a few reasons for instituting a buy back. | | | | sign for a small company on the move. |