>>but for a growth company it's an indication that there are no better
avenues for internal investment, which would not be good.
This is certainly true, but who cares how big a company becomes as long as the value of your share is increasing? I agree that it's better that a company has something to spend its money on, but I'd rather have them buying back stock than capitalizing a lower-margin growth area. In other words (to give an extreme example just to make the point easier to follow), if a company had a net margin of 5%, a share price of $100, and 1000 shares outstanding, and was making $5,000 per year on $100K of sales, I'd rather they spend $50,000 buying back half the stock, giving earnings of $10 per share and driving the share price to $200, than invest the $50K in growth with 3% margin and the same sales rate (i.e. additional sales of $50K), which would generate only $1.50 per share in additional earnings.
Of course, one would hope that growth would generate higher rather than lower margins, due to efficiencies of scale. But getting away from hypotheticals, IDTI is already sitting on excess capitalization. As I understand it, they have a lot of excess floor space to accommodate growth, but have not purchased equipment to fill it.
Anyway, they can (and I'm sure they plan to) resell the shares if they need to buy equipment for their floor space. If the orders come in, they'll be in a great position to ramp up, and in the meantime, they aren't holding idle cash. I am VERY impressed with the management of this company, vis-a-vis the mistakes made at AMD and Cyrix, and I think they have realized how money is going to be made in the more mature low-end microprocesser market that is about to blossom. |
