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. What do states do with unclaimed property?

    Unclaimed property refers to personal accounts in financial institutions or companies that have had no activity and whose ... Read Full Answer >>
  2. How do financial advisors execute trades?

    Today, almost every investor invests through online brokerage accounts. Investors often believe that their trades are directly ... Read Full Answer >>
  3. What are ComputerShare's escheatment services?

    Escheatment is the process by which ownership of abandoned property is transferred to the state. Escheated property can include ... Read Full Answer >>
  4. How does escheatment affect a company's shareholders?

    Escheated property in the United States is a designation for personal property such as bank accounts, shares, insurance proceeds, ... Read Full Answer >>
  5. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  6. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
Related Articles
  1. Stock Analysis

    Are U.S. Stocks Still the Place To Be in 2016?

    Understand why U.S. stocks are absolutely the place to be in 2016, even though the year has gotten off to an awful start for the market.
  2. Term

    Understanding Market Price and Its Changes

    An asset’s or service’s market price is the current price at which it can be bought and sold.
  3. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
  4. Professionals

    Is A Stockbroker Career For You?

    Becoming a stockbroker requires a broad skill set and the willingness to put in long hours. But the rewards can be enormous.
  5. Stock Analysis

    Forest Laboratories: An Activist Investment Analysis

    Find out how patience and perseverance paid off big-time for billionaire activist Carl Icahn during his four-year fight with Forest Laboratories.
  6. Stock Analysis

    Tribune Media: An Activist Investment Analysis (TRCO)

    Learn more about the breakup of Tribune Company, once a powerful newspaper and broadcasting giant, and the role of activist investor Cliff Robbins.
  7. Stock Analysis

    PepsiCo: An Activist Investment Analysis (PEP)

    Read about the nearly two-year public feud between activist investor Nelson Peltz, head of Trian Fund Management, and iconic soft drink maker PepsiCo.
  8. Stock Analysis

    Hologic: An Activist Investment Analysis (HOLX)

    Read about a health care company that attracted activist investors Carl Icahn, Barry Rosenstein and Ralph Whitworth at the same time.
  9. Stock Analysis

    Air Products and Chemicals: An Activist Investment Analysis (APD)

    Learn about the productive, and uncommonly friendly, activist investment made by Bill Ackman into Air Products and Chemicals.
  10. Investing Basics

    How to Pick A Stock

    The first step in picking stock is to determine your goals.
RELATED TERMS
  1. Corporate Accountability

    The performance of a publicly traded company in non-financial ...
  2. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  3. Sector

    1. An area of the economy in which businesses share the same ...
  4. Share Repurchase

    A program by which a company buys back its own shares from the ...
  5. Swap

    A derivative contract through which two parties exchange financial ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The ...
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center