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Originally Posted by FLAMESRULE
As a general question for those involved heavily in the market (specifically O+G), as a shareholder in a major or very cash rich junior right now would you prefer your company to 1) Start a major share re-purchase plan to lower your stock base or 2) target cheap acquisitions??
http://business.theglobeandmail.com/.../Business/home |
The math.....you buy back stock if the rate of return implied in the stock price is higher than you can get in investing in your own assets or buying companies. So basically, if you can't find anything to invest in out there that can generate a better return than buying your own stock, then you put your cash into your own shares. A lot of companies operate like traders....buying their stock when its cheap and issuing secondaries or private placements to raise money when the stock is high.
If you are a growing company with a good management team, it is pretty tough to tell investors that you can't find any good assets to pick off and have decided to buy back your own shares.