We’re often banging on about stock buy backs to anyone who’ll listen. We like them because they represent the lowest risk investment for any company with undervalued stock. The S&P500 peaked at 1,576.09 on October 11, 2007. It’s now off a lazy 47% to 827.50. It’s probably fair to say that the average stock is better value now than it was before the financial crisis began (Note: We are not saying that we think the average stock is good value, just that it’s better value than it was 15 months ago). One might think that this relatively better value would result in a surge in buy back activity. One would be wrong (click to enlarge):
(Source: Bloomberg via Market Folly).
[…] been banging the drum for buy backs quite a bit recently. We wrote on Friday that they represent the lowest risk investment for any company with undervalued stock and we’ve written on a number of other occasions about their positive effect on per share […]
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you’re right! the earnings are not bad at all for such an undervalued company
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Yes, you’re right. In the case of KSW, I should have said no long term liabilities. Accounts payable are roughly equal to accounts receivable.
And KSW is not a Graham net-net stock, but I do find it a huge bargain. When I find companies well-positioned in their industry selling at their cash value, I use other valuation metrics. Most simply, for KSW, you are getting the future earnings power of the company for free, if you buy at these levels.
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but KSW has 31.1mln of liabilities,cash 19mln and receivables at 30mln…with the market cap at 19mln(it was 11mln at the low)…not such a huge bargain
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Yeah, this really gets under my skin–especially now when bank deposits yield very little. At least be somewhat consistent in your behavior–if you liked your own stock then, then you should be quite smitten by now!
I have so many stocks in my portfolio that the market values only for their cash in the bank. Some of these companies have virtually no outstanding liabilities (e.g., KSW). If these companies announced they were going to use half of their cash to buyback half of the company, I suspect the stocks would surge. Even if they didn’t, and were able to complete the buyback, the value of the remaining shares double!
It seems so simple, and yet fear prevails. (And I suppose that is why I love public markets so much…)
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