My firm has been asked a lot recently by client board members about stock buybacks. Though I obviously don’t speak for all current/former institutional investors, my answer is nearly always the same (spoiler alert: these are generalizations).
- If your micro- or small-cap company is unprofitable, don’t buy back your stock.
- If your micro-or small-cap company has raised outside capital in the last 18 months, or will need to in the next 18 months, don’t buy back your stock.
- If you consider your micro- or small-cap company to be a “growth” company, use any/all extra capital to…grow.
- If your micro- or small-cap company feels it has no additive use for excess capital, then perhaps you’re not actually a growth company.
- If your micro- or small-cap company feels it has no additive use for excess capital, then just give it back to shareholders directly.
To the tiny percentage of wildly cash-flowing, institutionally-owned, slow growth micro- and small-caps…knock yourself out.