What is a major method by which a company can signal confidence in its stock to the market?

A stock buyback program serves as a strong signal of confidence from a company to the market regarding its stock value. When a company initiates a buyback, it effectively communicates that it believes its shares are undervalued and that repurchasing them will enhance shareholder value. This action reduces the number of shares outstanding, which can lead to an increase in earnings per share (EPS) and potentially a higher stock price. Investors often interpret this move as a positive indicator of the company's financial health and prospects.

While raising dividend payouts can also signal confidence, it is usually a response to stable or growing earnings rather than a proactive measure regarding the perceived stock value. Increasing the number of shares offered typically dilutes existing shareholders and does not convey confidence in the stock's worth at that moment. Announcing layoffs, on the other hand, might indicate restructuring in response to poor performance or financial struggles, which generally does not suggest confidence in the company's operational stability. This makes the stock buyback program a more direct and compelling way to convey confidence to the market.