Imagine a company that initially has 100 million outstanding shares and earns a net income of $50 million, resulting in an EPS of $0.50. If the firm decides to repurchase 10% of its shares, the total number of shares drops to 90 million. With net income unchanged, the EPS rises to approximately $0.56. This enhancement in EPS tends to boost the stock’s market valuation when price-to-earnings multiples remain constant.
