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Gold/Mining/Energy : Direct Focus Inc. (DFXI)
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To: Mark Hill who wrote (337)10/24/1998 1:18:00 PM
From: Gordo  Read Replies (1) of 768
 
Mark,

I am not sure that I agree with you that a share buyback would cause more price gyrations because of the lower float. On the contrary, the buyback should provide downside stability, as the company will be able to sit on the bid and absorb any sellers.

In terms of a third product, the company is just launching their second product, and I suspect a third product is still probably a couple years away. In the meantime the company will be accumulating cash, and it really does no good to investors to leave it on the balance sheet. The most likely options are:

1. Dividend to shareholders.
2. Buying another company.
3. Buying back shares.

I prefer #3 because it will deliver a better return to shareholders than a pure dividend (I can provide my detailed rationale for this if you like). In terms of buying another company, this only makes sense relative to a share buyback if they can find one more undervalued than themselves.

Both Peter Lynch and Warren Buffet are fans of share buybacks - and if you read their books they give some good reasons why. Can't really argue with the track record of either one.

I'm hoping for a good pop in share price on Monday when the financials are released. I'm still sticking by my estimate of $0.44 Cdn for the quarter.

gord
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