According to the internet and people that commented in my prior post, the market capitalisation of a company stays the same after buy back of shares i.e, the share price rises sharply to match the increase in EPS.
If that is the case, then it seems like a free way to earn money. Let’s say apple is buying back half of its outstanding shares with its free reserve. I have 100 shares of AAPL which I bought yesterday for 100 dollars totally(1$ per share). I sell 50 of those 100 shares and get 50$ as compensation and hold the remaining 50 shares.
Now, since there are only half the outstanding shares as before the EPS doubles. Since it has doubled, the price doubles too to match the PE ratio as before(Assuming the forecast of the company future cashflows with or without the free reserve stays the same). In such case, my remaining 50 shares are now worth 100$. Upon selling I finally have 150$ in my account.
Does the existence of such loophole mean, the EPS rising as a result of buybacks dont have a say in the future price of the stock and that market capitalisation decreases after stock buyback?