What is an odd-lot buyback?

By Katie Adams AAA
A:

An odd-lot buyback occurs when a company offers to purchase shares of its stock back from people who hold less than 100 shares.

A popular method that companies use to buy back stocks is called a Dutch auction. Shareholders who are interested in participating in the auction indicate a price range within which they would be willing to sell their stocks back. The company will buy back the shares from the lowest tendered offers, all at the same price. The price is the highest of the accepted offers.

This type of offer makes it less expensive both for the company (due to the reduced cost of servicing these small shareholder accounts) and for the shareholders (because they do not have to pay brokerage fees to sell their shares). A buyback also can increase a stock's price-to-earnings ratio by decreasing the number of outstanding shares.

Some investors consider buybacks when evaluating a particular stock's potential. In the Kiplinger.com article "Winners Among Companies That Buy Back Stock" (March 2005), David Fried states that an odd lot buyback is "an enormous vote of confidence by those who know it best - the company's senior executives," and that "companies buy back stock when they are really undervalued or when there's something positive that's going to happen."

To go through the mechanics of a share buyback and what it means for investors, read our related article A Breakdown of Stock Buybacks.

This question was answered by Katie Adams.

RELATED FAQS

  1. How do technical analysts interpret the Average Directional Index (ADI)?

    Learn what the average directional index is and why technical analysts look towards ADX indicators to measure the strength ...
  2. What are the differences between dilutive securities and antidilutive securities?

    Learn how investors and accountants apply the terms "dilutive" and "antidilutive" to securities or the exercise of security ...
  3. Is the Dow Jones a public company?

    Find out how the Dow Jones Industrial Average tracks the health of the U.S. economy. This fluctuating number indicates the ...
  4. Is the Dow Jones a stock exchange?

    Learn about the Dow Jones Industrial Average and its impact. This historically significant index provides a daily snapshot ...
RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Registered Holder

    Shareholders who hold their shares directly with a company.
  3. Acquisition

    A corporate action in which a company buys most, if not all, ...
  4. Entitlement Offer

    An offer to purchase a security or other asset that cannot be ...
  5. International Finance Corporation

    The International Finance Corporation is an organization dedicated ...
  6. International Finance

    Definition of international finance

You May Also Like

Related Articles
  1. Stock Analysis

    Buyinb Facebook Stock, A Beginner's ...

  2. Investing News

    Alibaba's Top Competitors

  3. Investing Basics

    Analysis of Companies with high goodwill

  4. Investing Basics

    What Does The Dow Jones Industrial Average ...

  5. The Nikkei index is synonymous with Japan's economy, the third-largest in the world. Here's the easiest way to take a stake.
    Mutual Funds & ETFs

    How To Invest In The Nikkei 225

Trading Center