In theory, company executives use buybacks to prop up a company’s share price when they think the stocks are undervalued. This means that in theory, more buybacks should happen when valuations of stocks are low than when valuations are high. In practice, the relationship between stock valuation and share buybacks for US companies looks like this:
Takeaway: buybacks as leading indicator?
“ This means that in theory, more buybacks should happen when valuations of stocks are low than when valuations are high.”
Alternatively, companies can afford to buy back shares when they are doing well. When they’re doing well, they can afford to do buybacks.