Mr. Market sometimes makes little sense. Take Home Depot, for example.
They just completed a Dutch Auction where they bought back 289 mil shares, all acquired at the low end of the price range. This was more than the 250 mil shares estimated. So let's see...it is a bad thing that they have removed more shares from circulation and at lower prices than estimated?
Yes, it means more people were willing to part with their shares since they got acquired at the lowest prices. And, it must mean there are more sellers out there who didn't get their shares bought. Does this mean they will end up selling their shares? Could it represent latent selling pressure? I'm not so sure about the logic. Isn't the whole point of the Dutch Auction for investors to offer their shares based on what they thought it was worth? Since 289 mil shares reportedly got offered and accepted at $37, the low end of the range, one can say shareholders were more willing to part with their shares for a lower price. Since yesterday's price was well above the $37 range, we have tankola.
But, doesn't it also mean that the company got a better deal in the process, and it's financial results will only be better, having acquired more shares and for lower prices?
To add to the market pessimism, Raymond James indicated in a Wall St. Journal article that the share buyback will cause stock index funds to reduce their holdings to adjust for the lower share count, which will also lower the share price short term.
Is it just me or does all of this seem like really, really short term thinking?
Home Depot's performance is tied to the housing market in that it sells to homebuilders, and subprime is usually the prime reason given for selling the stock. But, HD's market isn't just new home construction. Also, when people decide not to, or can't buy a new home, I would imagine many compromise by fixing up their existing home. Isn't that somewhat of an offset?
The company is on sound financial footing. S&P maintains a "strong buy" rating on the stock, and they rate their financial stability as an A+.
Some have expressed criticism that HD's selling off their wholesale distribution business was shortsighted, that it was the best future growth driver, but HD retained a 12.5% stake in that operation. The reason for it is to allow them to focus on their retail operations. Sounds like a smart move to me.
They just completed a Dutch Auction where they bought back 289 mil shares, all acquired at the low end of the price range. This was more than the 250 mil shares estimated. So let's see...it is a bad thing that they have removed more shares from circulation and at lower prices than estimated?
Yes, it means more people were willing to part with their shares since they got acquired at the lowest prices. And, it must mean there are more sellers out there who didn't get their shares bought. Does this mean they will end up selling their shares? Could it represent latent selling pressure? I'm not so sure about the logic. Isn't the whole point of the Dutch Auction for investors to offer their shares based on what they thought it was worth? Since 289 mil shares reportedly got offered and accepted at $37, the low end of the range, one can say shareholders were more willing to part with their shares for a lower price. Since yesterday's price was well above the $37 range, we have tankola.
But, doesn't it also mean that the company got a better deal in the process, and it's financial results will only be better, having acquired more shares and for lower prices?
To add to the market pessimism, Raymond James indicated in a Wall St. Journal article that the share buyback will cause stock index funds to reduce their holdings to adjust for the lower share count, which will also lower the share price short term.
Is it just me or does all of this seem like really, really short term thinking?
Home Depot's performance is tied to the housing market in that it sells to homebuilders, and subprime is usually the prime reason given for selling the stock. But, HD's market isn't just new home construction. Also, when people decide not to, or can't buy a new home, I would imagine many compromise by fixing up their existing home. Isn't that somewhat of an offset?
The company is on sound financial footing. S&P maintains a "strong buy" rating on the stock, and they rate their financial stability as an A+.
Some have expressed criticism that HD's selling off their wholesale distribution business was shortsighted, that it was the best future growth driver, but HD retained a 12.5% stake in that operation. The reason for it is to allow them to focus on their retail operations. Sounds like a smart move to me.
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