Understanding Stock Buybacks: A Strategic Tool for Small Cap Companies in Today’s Market

Key Points:
– Stock buybacks are a powerful tool for small cap companies to boost shareholder value, signal confidence, and optimize capital allocation—especially in today’s cautious market environment.
– Buybacks offer flexibility compared to dividends and can help correct market undervaluation by improving earnings per share (EPS) and supporting the stock price.
– Noble Capital Markets’ trading desk provides specialized, compliant, and strategic execution of buyback programs tailored to small and microcap companies.

In today’s volatile and uncertain market environment, many small and microcap companies are turning to stock buybacks as a strategic lever to enhance shareholder value. While often associated with large-cap firms, stock repurchase programs are increasingly being utilized by emerging growth companies as a way to signal confidence, support their stock price, and optimize capital allocation.

So, what exactly is a stock buyback? Simply put, a buyback occurs when a company repurchases its own shares from the open market. These repurchased shares are either retired or held as treasury stock, effectively reducing the total number of shares outstanding. This reduction in share count can lead to higher earnings per share (EPS) and, in many cases, a stronger stock price performance over time.

For small cap companies, this strategy can be especially impactful. Many of these firms trade at valuations that don’t reflect their underlying fundamentals, often due to limited analyst coverage or lack of investor awareness. A well-timed and well-executed buyback program can help correct this disconnect by demonstrating to the market that the company believes its shares are undervalued. Moreover, it signals financial discipline and a commitment to returning value to shareholders.

In the current climate—marked by inflationary pressures, tighter capital markets, and cautious investor sentiment—stock buybacks can also offer an attractive alternative to dividends. Unlike dividends, which establish an expectation for recurring payouts, buybacks provide flexibility. Companies can scale buybacks based on available cash flow without committing to long-term distributions.

However, executing a buyback program, especially for smaller public companies, requires careful planning and compliance with regulatory frameworks such as Rule 10b-18 under the Securities Exchange Act of 1934. This is where the expertise of an experienced trading desk becomes essential.

Noble Capital Markets’ trading desk specializes in supporting small and microcap companies with customized buyback solutions. With decades of experience and deep market insight, Noble helps companies structure and implement repurchase programs that are efficient, compliant, and aligned with strategic objectives. From navigating trading volume restrictions to maintaining anonymity in the market, Noble’s trading professionals act as an extension of a company’s finance team, ensuring each transaction is executed with precision and discretion.

Noble’s focus on the emerging growth space makes them uniquely positioned to understand the challenges and opportunities facing smaller public companies. Their trading desk doesn’t just facilitate transactions—they provide strategic guidance on timing, liquidity management, and market perception. For companies considering a buyback, having a trusted partner like Noble Capital Markets can make all the difference in achieving desired outcomes.

Stock buybacks are more than just a capital return mechanism—they’re a signal of strength, confidence, and long-term vision. For small cap companies looking to enhance shareholder value in a complex market, partnering with an experienced trading desk like Noble’s is a smart and strategic move.

Should You Buy at the Closing Bell and Sell at the Open?

Image Credit: Florin Cee (Flickr)

Much of Market Performance, in Some Cases All, Occur When the Market is Closed

All traders and most investors have experienced this. From one market close to the next, indexes or stocks rise by 1.5% – 3%, and yet there was never a clear opportunity to make a dime after the market open. The frustration is because the market opened with much or all of the day’s gain baked in. It has been proven to be accurate that the most significant revaluation of stocks occurs during the 17 hours when the market is closed, not the 7-hours when it’s open. And any long-term chart will show that the direction of revaluation over time has been upward. Details, along with other phenomena related to night moves, are discussed below.

Background

 Historically, stock markets have had a positive return, and most of this change occurs while the exchanges are closed or not during regular trading hours. Historically the tendency is to make most of its daily move between the closing and opening bell.

This has been shown in research papers through the years, and there are even ETFs which purport to take advantage of this statistical phenomenon. Of course this is not an everyday occurrence, in fact today (4/6/23), the S&P 500 opened lower than its previous close but began moving higher than the open around noon.

A well-researched scholarly paper had been published demonstrating these price movements and offered the explanation that stock prices behave very differently with respect to their sensitivity to beta when markets are open for trading versus when they are closed. The paper titled,  Asset Pricing: A Tale of Night and Day, by Henderschott, Livdan, and Rösch explained, “stock returns are positively related to beta overnight whereas returns are negatively related to beta during the trading day.”

Image Source: Asset Pricing aTale of Day and Night

 One goal of the research was to test the hypothesis that a securities performance relative to beta is only positive during certain periods. In the paper the researchers tested specific days or months by examining the CAPM validity during different time periods within each day, including all times and all days during the week. The authors wrote, “when the stock market is closed, beta is positively related to the cross section of returns. In contrast, beta is negatively related to returns when the market is open.”

The overall thrust of the findings in the 47-page paper are encapsulated in the chart above which plots the performance during opened and closed periods against different beta groupings of stocks over 25 years.

Can Investors Use this Information?

Most retail trading today is commission free, but there is still a bid offer spread and other slippage. For those that would prefer to not have to be active each day, twice a day, Nightshares ETFs were formed to exploit this phenomenon, with a set it and forget it approach. On the surface it would seem to make sense for long term investors. You could own the S&P 500 index ETF, or increase beta exposure for a potentially better performance with a small-cap index ETF.

The founder of Night Shares, Bruce Lavine, pointed out in an interview that over the 20 years through the end of 2022, the SPDR S&P 500 ETF SPY, 0.31% produced a buy-and-hold return of 9.7% annualized. Three-quarters of that return — 7.5% — was produced while the NYSE was closed.

The numbers are even more pronounced in the case of the small-cap Russell 2000 Index, according to Lavine. Over the same 20-year period, all of the index’s net return was produced overnight; during the day session, it actually lost ground on balance. In other words, small-cap portfolios that out-returned large-cap would have been better off if they were not exposed during the day.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://faculty.wharton.upenn.edu/wp-content/uploads/2013/06/draft20130612pp-full.pdf

https://www.marketwatch.com/story/youll-make-the-most-money-in-the-stock-market-during-these-specific-and-suprising-hours-bdd55215?mod=home-page

https://www.ftserussell.com/