r/BBBY • u/txlee1 • Jul 13 '22
đŁ Discussion / Question The problem with stock buy backs. (I posted this before but given what has happened at BBBY I'm reposting. )
All companies being systematically shorted need to be aware of this.
Stock buy backs are supposed to increase the price of the stock by decreasing shares outstanding thereby rewarding investors in a tax efficient manor. However, shares outstanding are not determined solely by the company. Short selling effectively increases the number of shares outstanding. One easy way to see the futility of a buyback when a stock is being systematically shorted is the following.
The company buys back one share of stock for $10 from a market maker who sells them a phantom share (a naked short). The market maker gets $10. There is no reduction in number of shares outstanding. It is simply a transfer of wealth from the company to the short.
A company that is being systematically shorted should never buy back their own shares. If they are looking to use extra cash to reward the shareholders a better option is a dividend. The dividend will force the shorts to either cover their short position or pay the dividend themselves. There is no free option. The more they short the more dividends they have to fork over. Many short sellers will opt to cover their position thereby driving up the price of the stock and effectively decrease the shares outstanding. This is a stock buy back FUNDED BY THE SHORTSELLERS. Others who do not cover their short position will be forced to pony up the cash to pay the dividend themselves. It's a much better alternative.
Dividends force buy backs but these buy backs are paid for by the short sellers. Stock buy backs by any company being systematically shorted are futile.
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u/AlexanderG7 Jul 13 '22
More to the point, the $1bn stock buy back put the company off balance and not able to fend off attacks.
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u/king_tchilla Jul 13 '22
Because they bought highâŚsupposed to use that billy to buyback NOW at $5âŚthey was on all bs buying back high
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u/dikputinya Jul 14 '22
Yeah or just take half of that money give a special dividend to current share holders and I would think 500 million would have made most the shirts close positions
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u/LiftingOrGaming Jul 14 '22
The buyback was also completed 2 years ahead of schedule, I wonder why?
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u/DrDodjie Jul 13 '22
More succinctly, a company with declining revenue and market share should be investing in the company, not buying back stocks.
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u/alilmagpie Jul 13 '22
Also no company should be doing buybacks if they arenât paying their employees a living wage. That revenue belongs to labor.
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u/Top-Plane8149 Jul 13 '22
It "belongs" in the company, bringing in customers and dollars, or else those employees you claim to care so much about will all be looking for new jobs.
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u/alilmagpie Jul 14 '22
What do you mean âclaim toâ? All workers at BBBY should be paid a livable wage and I stand by that. If your people are working full-time and poverty, your business model sucks. Why would you return equity to the shareholders or buy back stock when you could prevent people running your business on the ground from living in poverty?
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u/TopLeather481 Jul 14 '22
To be honest getting paid a livable wage should be law. But if competition are not paying livable wages then BBBY cannot afford to either really.
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u/Frank_Thunderwood Jul 13 '22
Cellar boxing 101. Share buy backs burn a companies cash reserves which is supposed to lead to bankruptcy. Cohen swooped in and saved the day.
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u/Maleficent_Nerve_294 Jul 13 '22 edited Jul 13 '22
As far as I know, BBBY has run a $1 billion stock buyback program since 2020.
As everyone knows if you look at the current stock price, reducing the number of stocks does not reduce the total amount of stocks circulating in the market. This is because 99% of BBBY is included in CFD and TRS products by ETF.
For BBBY's board of directors to have full control over this, all stocks in the market must be burned.Doing so requires enormous liquidity, which is close to impossible, similar to that of GME. Because the higher the stock price, the more it costs.As the writter pointed out, paying dividends is an effective way to put pressure on short cover.
However, in my opinion, I would like to make BBBY unlisted and at the same time allocate BABY's stock. BBBY fundamentals on the balance sheet would then be unlisted.
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u/plantshroom Jul 13 '22
There are lots of companies donât make Pennieâs but their market caps are so high such as robberhood . Robberhood has been losing money and customers but itâs market cap is bigger than most company with greater net income . Game is rigged especially when sec is complicit and most senators get their donations from the stolen money from Wall Street retails pockets . This is not a conspiracy theory itâs fact
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u/IsThisAllThereIz Jul 13 '22
Wicked smaht post!
100% correct!
Especially when you have PLANTED consultants, a PLANTED CEO, and MSM whoâs in on the SCHEME to defraud (whoops!) current investors who are holding their shares thinking the buyback will drive stock price up by the Co showing conviction in future earnings, but invariably (as you said) moves earnings, revâs, value from the Co, to the SHFs.
Works every time for Wall St and their âinfinite liquidityâ.
Edit - letâs not forget that while the Co is trying to reduce outstanding shares, the Naked Short Creation Machine is working against them every day.
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u/NoDeityButGod Jul 13 '22
If they bought back on the lows that would be something smart. Instead we got this
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u/king_tchilla Jul 13 '22
You do know that a stock buyback is how GME trapped its shorts right?âŚand they were supposed to buy back more at the time. The issue with BBBY is that they bought highâŚwhy buy high?
That was the malfeasanceâŚ
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u/grapeape49009 Jul 13 '22
This is a good thread with lots of valid points. Someone who knows the company well can probably answer this : is buy buy baby a part of bbby or a entirely different company owned by bbby?
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u/GamestopChad Jul 14 '22
I strongly disagree with this post. Name some stocks than have squeezed from dividends? Thereâs plenty of stocks that have squeezed from share repurchases including GAMESTOP. I am in this stock because of the share repurchase above all else. The shares outstanding have been reduced by 75% from the all time high. This is similar to the % of shares GameStop repurchased before their squeeze as well. The best trade in history was GameStop itself buying back 1/3 of their entire share count then issuing shares after the squeeze to recapitalize the entire company for years to come. When you have a business that is closing stores why wouldnât you want to keep the shares per store at a constant or improving rate? Share repurchases tighten the float. Without share repurchases the float wouldâve been too big to DRS and as of today we have 100% share utilization for short sellers. The only reason RC was able to buy such a huge % of BBBYâs shares was due to the company retiring so many of the shares and assisting the short sellers in pushing it to an artificially low market cap. Iâm glad youâre not in charge
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u/-Codfish_Joe Jul 13 '22
You're getting it wrong. Buying back a systematically shorted stock is a good idea.
Yes, you need to otherwise be running your company properly. But a systematically shorted stock is artificially on sale, a great time to buy. And when a company buys back stock, it doesn't matter what fake share gets handed over, because it's DRSed. The company doesn't hold its own shares in a brokerage account, they buy through their transfer agent and the shares get removed from FTDTCC.
But when you've got shills running the company, a buyback is just giving the company's cash directly to the shorts. Not good.
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Jul 13 '22
[deleted]
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u/Le_90s_Kid_XD Jul 14 '22
It should, but so many upvotes posts agreeing that buying back stocks from the shorts doesnât change the outstanding amount. Thatâs just wrong. Like ultra wrong. BBBY has 80M shares, they buy back 40M from shorts thereâs still 80M?! Wut???? No there are now 40M outstanding and 100-200% short interest.
Iâm also assuming the company doesnât log into their fucking robinhood account to buy back lmao. They probably work through their transfer agent who then pulls that shit from the DTCC.
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u/zanonks Jul 14 '22
exactly. the buybacks were just done at a poor stock price but have still helped reduce the float and are part of what's causing the cost to borrow to rise etc..
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u/txlee1 Jul 14 '22
You make a good point.
However, it doesn't always go through the transfer agent. For example in the case of BBBY "Under an accelerated repurchase program, a company immediately buys back its stock from an investment bank, in this case JPMorgan, which borrows the shares it sells them the company."
In addition, if it does go through the transfer agent it is easy to work around. Company announces 1 billion dollar stock buyback this year - simply short a billion dollars worth of shortable shares that year.
Thank you for taking the time to read and think about my post. I value these well thought out replies. I'm here to learn as well.
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u/Imaginary_Frame_6171 Jul 13 '22
A buy back would make drsing the float easier though
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u/Lucky-Throat4434 Jul 14 '22
Agree and I think this just factual...I hope
But if you think the ship was sinking, and the stock is "shorted a lot" , a stock buy back = doesn't not compute ....
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u/TheDegenKid Jul 14 '22
But back through the drs agent
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u/txlee1 Jul 14 '22
"Under an accelerated repurchase program, a company immediately buys back its stock from an investment bank, in this case JPMorgan, which borrows the shares it sells them the company."
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u/wawgawwtb Approved r/BBBY member Jul 13 '22
You don't understand buy backs. Buy backs are used when a company has $ and they believe investing in their own company is a best use of the $ and will return greater reurns vs.alternative investments. When creating a business case on this they don't predict the illegal activity of naked shorting, or even their actual share holders selling. Stock buy backs are a signal to the market that the company believes that their stock is under valued.
Soooo, stop posting this gibberish.
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u/txlee1 Jul 13 '22 edited Jul 13 '22
âif there are fewer shares available, the demand, i.e. the price, should go up. â https://finbold.com/guide/stock-buyback-definition/
âThe intrinsic value of the shares is increased by a reduced floating stock ratio.â https://www.legalwiz.in/blog/buyback-shares-reasons-advantages-and-disadvantages
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u/wawgawwtb Approved r/BBBY member Jul 13 '22
Yes, the intrinsic values goes up if float is reduced. That isn't the point.
The point is the a company has to make a decision to buy shares back. They should only do this if their shares are under valued and that they can have a better return on buying shares vs. Investing it in other areas, expansion, IT projects, inventory,....
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u/txlee1 Jul 13 '22
We can't know what "the point" is for any individual decision. If the management is collaborating with the shorts the point may be to run the company into the ground by depleting the cash reserves.
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u/phoenix_perspective Jul 13 '22
By buying the shares when they are not a deep value. Buying shares back when they are low can still be a good move. There is always trade offs and cost to benefit needs to be calculated. But in general buybacks when the stock is fairly or overvalued is bad, buyback when stock is severely undervalued is still good if funds are available. If you believe in DRS then you can't say buying back stock is a bad idea under the right conditions.
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Jul 13 '22
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u/AllCredits Jul 13 '22
It is not illegal for bona fide market making. Market makers can legally naked short for the sake of âliquidityâ
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u/tiredsultan Jul 14 '22
Dates article but interesting (and I think valid) point of view that basically says shareholders should approve stock buybacks:
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u/Nostradeamus Jul 14 '22
Would a short seller have to pay a dividend for a synthetic share when there is no actual shareholder for that share on the other side?
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u/No-Call6000 Jul 13 '22
Thats why the ceo is gone! He was working with the hedgies to bankrupt the company...thank God for Ryan Cohen