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Harry Long
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Harry Long is the inventor of Structural Arbitrage and Hedged Convexity Capture and is the Managing Partner of Zomma, the world's most innovative strategy index creator. Mr. Long is a globally recognized expert on the research and development of quantitative investment strategies. Zomma's... More
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  • Ebix's Expanded Stock Buyback Authorization Could be a Catalyst for Share Price Appreciation 3 comments
    Jun 14, 2010 12:32 PM | about stocks: EBIX
    There are few better catalysts for stock price appreciation than expanded share buybacks. Coupled with Ebix's excellent growth, its board's authorization of a tripling of the authorized buyback amount from $5 million to $15 million could be an excellent catalyst. (finance.yahoo.com/news/Ebix-Increases-Si...)

    It's great to see management teams and company boards that put their money where their mouth is when it comes to an undervalued stock. It has been clear that Ebix management has seen their stock as undervalued for some time now, and an expanded buyback authorization is yet more tangible evidence of a commitment to increasing shareholder value.

    In addition, the buyback may create upward pressure on the stock as shorts simultaneously have received a blow to their thesis, and buying pressure increases the share price.

    All management behavior is a form of signaling. The increased buyback authorization signals shrewd management and perhaps (just perhaps) a willingness to increase buyback authorizations in the future.



    Disclosure: Long Ebix
    Stocks: EBIX
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Comments (3)
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  • rooney
    , contributor
    Comments (13) | Send Message
     
    How on earth do buybacks illustrate "shrewd" managment? How does it suggest future buybacks? And how does a buyback disprove the short thesis?
    Growth companies generally don't have buy back programs. They use the cash for acquisitions. Slowing of their growth (either organic or via acquisition), would be terrible for valuation. Companies will use the "cheap valuation" as an excuse to buy back stock, but in reality, it's suggestive of something troubling: lack of acquisition opportunities or lack of returns on employed capital. Further, they have liability exposure regarding converts and bank loans. This particular buy back is a lame attempt to scare the shorts and boost their stock price above the conversion price. (I suppose on the other hand, the EZ Data doesn't seem to be working out, so perhaps a buy back is appropriate given their acquisition skills).
    What they should be doing is ramping up their sales force and marketing efforts. They claim to be doing so, but hiring a bunch of people to work out of their India facility isn't the same thing.
    You need to pick apart the numbers and ask serious questions of how these numbers are really adding up. The short thesis is quite simple, and a buyback only strengthens it.
    7 Jul 2010, 12:51 PM Reply Like
  • Harry Long
    , contributor
    Comments (180) | Send Message
     
    Author’s reply » 50% EPS growth last quarter.

     

    How's that short position working out for you? :)
    17 Aug 2010, 12:00 PM Reply Like
  • rooney
    , contributor
    Comments (13) | Send Message
     
    are you serious?
    18 Aug 2010, 11:09 AM Reply Like
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