Repurchasing Of Shares - Typical Outcome?

[bovverd]

I have found a company who I am researching who have very large cash reserves ie 60% of their 340 million dollar total of net current assets.

The stock has been heavily oversold recently and the company are taking the opportunity to use some of their free cash to repurchase stock (30% of the total outstanding shares).

So I am trying to determine if a significant stock repurchase program such as this would be likely to push the share price higher?

Thanks in advance for your time.

[Gunnski]

Very simple. Think Supply & Demand. Less shares means the price may go up.

Another clue may be Insider Trading. Check for recent BUY activity.

Also, follow recent vol. Is it spiking? You may want to follow a large spike then followed by contraction of vol. That may be the time to jump in. Last, how are the MA's trending? Up, down, sideways & what stage is the stock in base, trading range, uptrend, top, or down trend?

Is the stock on sale?

[bovverd]

Originally Posted by Gunnski

Very simple. Think Supply & Demand. Less shares means the price may go up.

Another clue may be Insider Trading. Check for recent BUY activity.

Also, follow recent vol. Is it spiking? You may want to follow a large spike then followed by contraction of vol. That may be the time to jump in. Last, how are the MA's trending? Up, down, sideways & what stage is the stock in base, trading range, uptrend, top, or down trend?

Is the stock on sale?

Sorry Gunnski - Thanks for your advice but Im not trying to call volume spikes or MA's etc and the trend is definately down hence my interest!

Im looking at a company who are priced just below their net current asset value per share. They are profitable, have in demand products, very little debt and huge cash reserves. I guess their 52 week trading range is a low of $4 and a high of $20 and they are currently priced at $4.90 so as there appears to be a hell of a lot more upside potential than downside I am obviously interested.

They have recently announced a share buy back scheme to purchase $20 million worth of shares from a current total of 64 million. so as it appears they are planning on removing a very large chunk of their outstanding shares and as the price is currently very near to their 52 weeks (and all time) low I am predicting this buy back will begin soon.

So my question is would a purchase of $20 million worth of shares, obviously in a series of purchases, be likely to push the share price higher from its current level of $4.90.

logic, or my own logic at least would think this is VERY likely to increase the share price.

[Gunnski]

I wish I had a crystal ball. That is why I suggested some clues to assist you & to help you answer your question regarding if share price increases.

As you describe, this stock appears cheap and near it's 52 week low. That does not necessarily make it a good investment. You need to check things out & not just a re-purchase program that is announced. They can annouce whatever they want. Does not mean its going to happen!

[bovverd]

Originally Posted by Gunnski

I wish I had a crystal ball. That is why I suggested some clues to assist you & to help you answer your question regarding if share price increases.

As you describe, this stock appears cheap and near it's 52 week low. That does not necessarily make it a good investment. You need to check things out & not just a re-purchase program that is announced. They can annouce whatever they want. Does not mean its going to happen!

Yes me too with the crystal ball

As far as the investment is concerned i have checked it out and it looks pretty good as far as Net Nets are concerned. I was just trying to establish if the buyback would place an upward pressure on the current price. because thats what Im hoping.

[joshuat]

Buybacks only make sense when the company is buying at lower than intrinsic sale, and the operating story is best of breed. For example, suppose the stock is below intrinsic value, but the return on capital in the business is only 3%. Great, the management just made an investment with somewhere around a 3% return - not too smart. There are far better ways to deploy capital in that situation. If the buyback is purely to boost share prices, yes, the shares outstanding will fall, concentrating the value of each stock, but then you are losing the cash on the balance sheet. In the end, Wall Street will usually ignore that kind of buyback. Even if it rewards it short term, the balance sheets don't lie, and the anemic result will read loud and clear in subsequent quarters. Sure, you may get a quick pump up, but for the long term shareholder the buyback destroyed value, and the share prices will reflect that eventually.

On the other hand, if the investment makes sense, Wall Street typically rewards this strategy.