During his recent interview with CNBC, David Einhorn discussed the difference between good buybacks vs bad buybacks. Here’s an excerpt from the interview:
Q4 2022 hedge fund letters, conferences and more
Einhorn: There’s two types of buybacks, right? There’s the buybacks where the company has extra profits and they want to return it to shareholders, and they want to do… and the valuation of the stock they feel is undervalued, and they think they can create value for existing and continuing shareholders by repurchasing some of the shares.
Thereby shrinking the number of shares outstanding and giving everybody an opportunity to own more of the company without having to put more money into the company.
I think those buybacks are great.
There’s another kind of buyback, which is you have stocks which trade at really, really high prices, and they pay their people in stock and they try not to count the earnings, but to try to reduce the dilution. They take their cash flow and buy the overvalued stock. I think that that kind of buyback is less desirable.
You can watch the entire discussion here:
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Article by The Acquirer’s Multiple.
