A company repurchasing its own shares may suggest that it is no longer able to reinvest its excess cash at high rates of return.
Take IBM in the past ten years. Its share repurchase program, even at a so-called “deep discount”, was not necessarily welcomed as it was perceived as potentially impeding innovation and long term growth. The operation ultimately implies that short term shareholders are given preferred treatment over long term shareholders.
Share repurchase is a tax-free way of returning capital to shareholders, compared to dividends, and leaves the remaining shareholders with a larger piece of the pie. From a capital allocation perspective, return of capital should ideally take place only if the company is no longer able to grow it better than the shareholder could themselves.
Whenever investors are returned their own capital under the form of dividends, it comes with the time consuming and mental burden of having to reallocate capital themselves. They also inherit the financial pressure of having to generate at least equal returns. It is called reinvestment risk. Moreover, the accelerated tax cost needs to be compensated by even higher future returns with the residual, after-tax cash at hands in order to put the investor in the same position as if there were never any dividend paid.
From a capital allocation standpoint, return of capital to shareholders destroys value sometimes.