No. of Recommendations: 18
If the stock is trading at true fair value, these two effects precisely cancel out and there is no change in value per share. (the amount of value per share coming from earnings rises, and the amount of value coming from spare cash falls the same amount).
Only at the very instant of the share buyback. After that, they don't cancel each other out anymore. That's because when you use $5B of cash to buy $5B of shares, you are disposing of something that is growing at 3.9% (nominal) a year, and buying something that is growing at something higher than that, maybe 10% (nominal) a year. In essence, you are selling a $5B T-bill yielding 3.9%, and buying(very roughly) 20% T-bills, 50% varied company stocks, and 30% wholly owned companies (or whatever the ratio is today).
