It is hard to overlook the hypocritical approach that management has been guilty of recently, basically whining over low stock prices and firing their IR, but then having no problem raising funds at depressed prices. More disturbing is that many of these firms actually have solid balance sheets and don’t need to raise money to grow EPS at respectable rates. Some firms we have spoken to have expressed an opinion that they want to raise money just because they have not yet done so as a public company.
Here is a message for the CEOs - At these depressed levels you should be buying back stock which will lead to increased EPS, increased investor confidence and higher prices where you can eventually raise funds at more favorable terms. Why should we buy your stock at a P/E of 5 or lower when you won’t touch it? You can not forget about EPS in the quest to become bigger. Investors would rather see firms modestly grow the top line while aggressively driving EPS. Furthermore, give your recent funding efforts a chance to play out before rapidly returning to the markets. There is a time and place to raise money. The time now is to prove you can grow operations without abandoning shareholders, or else join the thousands of other companies that ignored simple market dynamics. Recommended reading: One Up on Wall Street by Peter Lynch. We urge investors to relay this message to management and stop funding transactions that make no sense.
Disclosure: Long CCME, DEER. Short CHBT at the time of this post