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Technology Stocks : PairGain Technologies
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To: pass pass who wrote (5517)6/28/1997 3:44:00 PM
From: Chuzzlewit   of 36349
 
pass pass, there are two ways a company with a lot of cash can enhance s/h value. It can buy back its own stock, resulting in increased eps, or it can invest in the future. Share buybacks indicate that the company believes its stock is undervalued, but it also implies that it has few investments which would result in greater growth of s/h value. With a market cap of about 1.1 billion, PAIR could retire about 10% of the shares outstanding which would result in an 11% increase in eps.

Alternatively, it could invest the same $110 MM in future earnings growth through R&D and aquisitions.

Capital constraints are a reality, so to do both would entail taking on considerable debt at high interest rates, increasing the riskiness of the company.

It would make me unhappy to opt for the former strategy because that would indicate that the company sees a limited future for itself.

Regards,

Paul
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