PC Jewellers today announced buy back of equity shares @350/share. As a retail investors, you might be confused how to play the stock further. Below are couple of factors you should consider before jumping in to any conclusions.
- Companies announces buy back due to various reasons. It could be either of the following.
- The company might have a lot of cash at their disposal and now they don't have any plans to invest it for expanding their business. So they might think buy back as a good option.
- The company might think buy back as a good way to return money to the investors (as most of the time buy back would be done at a higher price than the market price). But please be aware promoters are the ones who will eventually benefit more from buy back as they are holding most the shares of the company.
- Also buy back is a good option than paying dividends, as for dividends, the promoters might end up paying taxes on the money they are receiving (if the amount exceeds 10 lakhs)
- The company might think the stock is now trading at low valuations and so they think this is the right time acquire more shares or reduce public share holdings.
The reason for PC Jewellers buy back could be to boost the share price of the company. Please note that the share price have come down from 600 levels to 209 in the last three months and promoters might be thinking buy back at higher prices would boost the share prices further.- As of now, PC Jewellers has not announced record date for the share buy back. So I would recommend retail investors not to add fresh positions on these stock till the announced on this matter comes.
- Also please be understood that company has not specified how they are planning to execute the buy back. It can either be through tender route or through open market route. If it's through open market route, company can buy at any levels depending on the market conditions. It is not mandatory for them to buy at 350 levels.
- The company is planning to buy back only 3.07% of paid up equity capital now. So it might not have much impact on stock valuation factors (P/E, Return on Equity etc.). So in a longer term, this might not have much impact on share price of the company.
My advice to retail investors is - don't add fresh positions on the stock based on buy back price. But if you really want to invest, you should wait till further clarity comes from management on record data, buy back route etc. Also if you are long term investor, you should be pay more attention to company fundamentals and performance rather than share buck backs. Wait till Q4 result before investing fur
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