(C) Shares repurchase during crisis. Brave or Naive?

When a company thrives in liquidity and lacks enough profitable projects at the same time, a shares buyback seems a logical decision. On one side this signals to the investors, that the management is confident in the company’s development. On the other side, the investors should have a rational explanation of the reason why the company refrains from acquisitions during crisis, when businesses and assets are way undervalued. Crises offer this rare opportunity to buy “cheap” and extend market share.

My personal opinion is that during crisis the companies with liquid assets at hand should invest in talents’ development, market share expansion and capacity building, since those three would yield the greatest long term return for the shareholders.

Companies’ management should bear in mind that all the investors adjust the results for one-off effects, such as upward valuation of own shares, which should not add much of a benefit to the company fundamentals. Further on, the management should have a clear strategy on selling back to the market at economy rebound. A buyback with one only aim of price support could hit adversely the liquidity ratios of the company and hamper its recovery once the business cycle reverses and higher liquidity needs arise. Additionally, the shares liquidity could be negatively affected by the decreased free-float due to the shares repurchase.