Should you think favorably of a company buying back shares of its own stock? In many cases, yes.

This (admittedly not typical) example of a stock buyback, from a Zeke Ashton article, will shed considerable light on the matter:

"Share buybacks are another means to use cash to benefit shareholders and, when used appropriately, can radically increase stockholder wealth. I found a great example of this in Utah Medical Products (NASDAQ:UTMD), about which I wrote last year to demonstrate the power of share buybacks. Utah Medical makes for a perfect case study, because it increased earnings per share by 124% from 1997 to 2001 on an 11% cumulative increase in revenues, primarily by buying back boatloads of stock."

Repurchasing shares with excess cash is an excellent way for a company to boost its stock price and please shareholders. It's also a sign of management's confidence in the firm. By announcing that it's buying back shares of its own stock, a company can signal that it thinks its stock is a good buy at current prices. Of course, it might also be the case that the firm can't think of anything more productive to do with the money. If the shares are bought back when they're trading at inflated prices, then the company isn't doing its shareholders any favors -- in fact, it's destroying value. Buybacks aren't unilaterally good or bad.

Here are some Fool articles on share buybacks:

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