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SA Editor Douglas W. House
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Healthcare sector investor and analyst for over 20 years.
  • MusclePharm's Stock Buyback: Yet Another Example Of Bad Management 5 comments
    Dec 10, 2013 10:23 AM | about stocks: MSLP

    This morning an announcement from MusclePharm (OTCQB:MSLP) came over the wire announcing a $5M share repurchase program. Here is how the CEO describes it:

    "We believe repurchasing our shares is a prudent use of our cash and believe this initiative is consistent with the goal of maximizing shareholder value," said Brad Pyatt, President and CEO. "The new share repurchase program demonstrates our continued confidence in MusclePharm's strategy to generate long-term profitable growth and strong cash flow, and reflects our commitment to delivering value to our shareholders."

    Are you kidding me? I do not recall ever seeing a $70M market cap bulletin board company do this. Here is a firm supposedly in its early growth phase and management apparently believes that there are no better uses for the money than buying back shares. How about signing up more celebrity endorsers? How about bringing powder manufacturing in-house? How about an advertising campaign? How about extending its sponsorships (cross-fit championships, extreme sports, triathlons, etc.)? How about an acquisition?

    How in the world can investors trust a company that does something like this? Folks, this is yet another example of why you should stay on the sidelines with one. The only reason that this buyback is taking place is to goose the share price for insiders so that some or most can exit profitably. Never a dull moment with this one....

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: MSLP
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Comments (5)
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  • muscle_farm
    , contributor
    Comments (4) | Send Message
     
    Hi Douglas,

     

    I truly enjoy your articles and insight, so please don't take my comments negatively. Rather, I'd just like to pick your brain as you seem to have significant experience in investing. In your blog post above, you mention that the only reason that "this buyback is taking place is to goose the share price for insiders so that some or most can exit profitably." From a strictly opportunistic point of view, couldn't one purchase at the same levels (or lower) as the insiders, ride the share price up, and take profits just as you mention the insiders might?
    11 Dec 2013, 06:51 PM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (679) | Send Message
     
    Author’s reply » muscle: Good question in theory. In almost all cases, though, the price adjustment occurs seconds (or milliseconds) after a company announces a buyback. Retail investors can't compete in this space because they don't have the means to execute trades this fast. This is strictly an institutional game.

     

    This buyback is a grotesquely bad move. One question to ask is where are all the high powered advisors that are supposedly guiding the company to prosperity? How on earth could they go along with this? This is so bad it's beyond belief. As I stated in my article, I pay close attention to what management does. It's far more informative than anything anyone can say. Management's behavior in this case is a loud-and-clear message that its interests are misaligned with long term shareholders. There is a laundry list of more appropriate uses of the $5M. Buying back shares is right at the bottom.

     

    Clearly, you are bullish on the company. Me? I'm negative on it because it does not qualify as a valid investment candidate. MP means nothing to me. Therefore, I have no emotional attachment to it. I call it like I see it. I will share an insight with you that I have gained from my many years of trading. When the behavior of executives makes me think of the words: self-serving, incompetent, lack of integrity, I run as fast as I can the other way. There are 1000's of publicly-traded firms with good managers that are better investment candidates than this one. Be careful my friend. MP's market cap is tiny for a reason. This buyback only reinforces the market's low opinion of the stock.
    11 Dec 2013, 08:41 PM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (679) | Send Message
     
    Author’s reply » muscle: I neglected to address another point in your comment. That is, the appropriateness of buying stock at the same level of insiders and then taking the profit when they do. Theoretically, this is fine but how would you know that the stock buyback was going to take place? This implies that you have inside information. Trading on this information is, of course, illegal. If you do not possess inside information, then you are gambling or hoping for a buyback in a situation where the probability of it happening is miniscule (normally). MP's announcement floored me. This is the absolute last thing I expected management to do. It literally came out of left field. When you take on a trade, you want the odds tilted in your favor, not away.

     

    Bulls are allowing MP's tiny market cap versus its top line growth to cloud their judgment. They believe that the price will skyrocket after it posts Q4 results and applies for the up-listing. Whatever tentative credibility this scenario held was obliterated by the stock buy back announcement. Management failed, yet again, to demonstrate its commitment to building an investment-worthy enterprise.
    12 Dec 2013, 10:40 AM Reply Like
  • MPshareholder
    , contributor
    Comments (8) | Send Message
     
    Anything new with MP that betters your outlook on this company? With stock at such a low level, one would assume that insiders would continue to buy more, but it doesn't look that way.
    12 Feb 2014, 09:24 PM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (679) | Send Message
     
    Author’s reply » No change. I'm waiting for the 10-K so I can evaluate MSLP in more detail.
    12 Feb 2014, 11:16 PM Reply Like
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