Business Acquisitions
And during company conference calls, analysts continue to plug corporate executives to step up their share repurchases, to the extent of writing critical research reports of those enterprises which are not deploying their cash “burden” in support of their stock.
Undoubtedly, many Boards of Directors are listening, as many firms are again buying shares on behalf of authorizations put in place as far back as prior to the worldwide credit crises.
This is unfortunate.
Share prices are currently reacting to the economic slowdown, an event which will not be overpowered by share buybacks. All that does is raise the firm’s cost of equity capital by removing balance sheet flexibility.
If Boards truly wish to see their stock prices rise they will continue to cut their cost structure and effectively manage the balance sheet and discretionary spending. As an additional step, they should make value-adding acquisitions which will step up free cash flow.
Related articles:
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- Investors Overlook Cost of Capital To Their Detriment
- Real Free Cash Flow Not As Strong As Reported
Disclosure: No positions
Kenneth S. Hackel, CFA
President
CT Capital LLC
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If you are interested in learning more about cash flow, financial structure and valuation, order “Security Valuation and Risk Analysis” out this fall from McGraw-Hill.
