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Stock repurchases, also called share buybacks, occur when a company buys back its own shares from the stock market.

By doing so, the company reduces the number of shares available, thereby increasing the ownership stake of the remaining shareholders.

For example, consider Pixel Corporation, which has ten thousand shares outstanding, each priced at one hundred dollars. That makes the company's market value one million dollars.

If Pixel Corporation repurchases one thousand shares, only nine thousand remain in the market. With fewer shares outstanding, earnings per share or EPS  increases as the company's total earnings are now divided by a reduced number of shares.

For instance, suppose Pixel Corporation earned two hundred thousand dollars last year. Before the buyback, its EPS was twenty dollars per share.

After buying back one thousand shares, the EPS rises to twenty-two dollars and twenty-two cents per share.

This increase in EPS potentially makes the remaining shares more valuable, which may positively influence the stock price and benefit the remaining shareholders.

Companies often use stock repurchases to signal confidence in their future prospects, especially if they believe their shares are undervalued.