There are many ways for a company to deliver value to shareholders. Once a company reaches a certain size, growth becomes more difficult without coming up with new and potentially expensive initiatives. That’s why many large companies start paying a dividend.
Companies have another trick up their sleeve too. That trick is the share buyback program. As long as a company isn’t using debt to retire shares, it can have a great long-term impact on prices.
Payment processing company
PayPal Holdings (PYPL) is looking to add another $5 billion to their buyback program, a sign that company management things shares are cheap.
It’s funding the buyback from selling their buy now, pay later loan receivables from Europe to private equity firm KKR.
The news pushed PayPal shares higher, but they’re still down 10 percent over the past year.
Action to take: PayPal is a leading and trusted brands for online payments, and shares are trading for less than 14 times forward earnings.
Add in a big share buyback, and it’s likely the stock will trend higher in the coming months, making for a reasonable buy at today’s prices.
For traders, the September $85 calls, last going for about $1.10, could see further mid-to-high double-digit returns from here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.