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lostcarparkOn Monday, Ryanair announced their third quarter profits were down 25%. They also stated that profits for the next two years could be down as much as 50%. Naturally, this prompted a wave of selling, and Ryanair's stock ended the day about 40c down.
But one thing less widely reported is that Ryanair will be embarking on a share buyback peogramme, buying back about 3% of their stock. A buyback is the reverse of a stock issue, and the stock market equivalent of paying back a loan, and effectively means there are less shares in existance, so the ones that are left should be more valueable.
From the company's viewpoint, the lower the share price, the more shares they can buy for the same amount of money, and to some extent, the better deal they can give the remaining shareholders, since their shares will be scarcer and more valuable.
It does seem like they've played up the negative aspects in order to depress the share price to get it as low as possible for the buyback. I don't think they're doing illegal, but if they did it in reverse, there would be allegations of insider trading.
It's easy to forget, but once a company's shares are in the market, the price of those shares does not matter to that company. It may give an indication of the public perception of the company's future profitability, and it may be important to the directors, who probably own shares and options on shares, but it has no effect at all on the company's ability to trade. If the share price doubles, the company does not see a cent of that money.
The only times it makes any difference to a company's bottom line are when they want to raise new capital by issuing new shares, when they wnat the price as high as possible, and when they want to buy back stock, when they want it as low as possible.
If anyone has a bit of cash to spare, now could be a good time to buy into Ryanair for the medium term, as I can't help feeling that their profits may not be as poor as they're suggesting.
But one thing less widely reported is that Ryanair will be embarking on a share buyback peogramme, buying back about 3% of their stock. A buyback is the reverse of a stock issue, and the stock market equivalent of paying back a loan, and effectively means there are less shares in existance, so the ones that are left should be more valueable.
From the company's viewpoint, the lower the share price, the more shares they can buy for the same amount of money, and to some extent, the better deal they can give the remaining shareholders, since their shares will be scarcer and more valuable.
It does seem like they've played up the negative aspects in order to depress the share price to get it as low as possible for the buyback. I don't think they're doing illegal, but if they did it in reverse, there would be allegations of insider trading.
It's easy to forget, but once a company's shares are in the market, the price of those shares does not matter to that company. It may give an indication of the public perception of the company's future profitability, and it may be important to the directors, who probably own shares and options on shares, but it has no effect at all on the company's ability to trade. If the share price doubles, the company does not see a cent of that money.
The only times it makes any difference to a company's bottom line are when they want to raise new capital by issuing new shares, when they wnat the price as high as possible, and when they want to buy back stock, when they want it as low as possible.
If anyone has a bit of cash to spare, now could be a good time to buy into Ryanair for the medium term, as I can't help feeling that their profits may not be as poor as they're suggesting.
