What happened

Shares of Enerplus Corporation (NYSE:ERF) closed 9.3% higher on Wednesday, after the Canadian oil exploration and development company announced that it would conduct a "Normal Course Issuer Bid" on the Toronto Stock Exchange.

So what

What does that mean? Basically, it's a stock buyback. Enerplus has officially announced its intention to buy back, "from time to time over the next 12 months, if considered advisable, up to 17,095,598 common shares" of its common stock. That's 7% of the company's "public float," or total shares outstanding.

Management explained that "from time to time, the market price of its common shares trade in a price range that does not adequately reflect their underlying value." Next time that happens, management plans to take advantage of the fact to buy back some of its shares at a bargain price.

Oil derrick against sunset

Oil exploration company Enerplus thinks it's discovered value in its own shares. Image source: Getty Images.

Now what

Should you do the same? With its current valuation of 16 times trailing earnings, and with analysts surveyed by S&P Global Market Intelligence predicting that Enerplus's earnings will surge 27% this year and 36% more the year after that, there's arguably value to be had here. On the other hand, S&P Global data also shows that -- $189 million in GAAP "profits" notwithstanding -- Enerplus only generated about $3 million in real free cash flow last year and burned cash in each of the five years before that.

While investors are taking today's buyback announcement as an excuse to buy Enerplus stock, in my opinion, the company's weak history of free cash flow production gives investors just as much reason to stay away.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.