General Musings

This section is where you'll find my thoughts on life from the eyes of an entrepreneur.  The biggest challenge is balancing the success and obligations that success brings as the more successful one becomes, it seems the more obligations they have to the world.  Feel free to comment as you follow my journey and general musings regarding that journey. 


General Musings on Life & Entreprenuership

Two Overvalued Stocks, But Damn Smart Companies

(12/14/2018) Mark A. Cenicola

In case you didn’t already know, I’m no fan of stock buybacks. It’s a quick way for companies to magically make money from their balance sheet disappear.

Most of the time, companies are incredibly terrible at timing their purchases. They seem to like buying as the market roars higher, but never seem to buy after the market has tanked because by that time, they’ve probably used all the extra cash and run into trouble because of a cash shortfall. 

Look at GE. They spent billions buying their stock. Certainly, they could have used that cash to pay down their massive debt and wouldn’t be in their current liquidity crisis.

Or, take a company like IBM. This company has been struggling to grow for years and also bought back a ton of stock. Now, with a huge opportunity on their hands with the Redhat acquisition, they are forced to borrow money to complete the deal when they could have simply used cash on hand to finance the deal.

What’s even worse are companies that take on debt to repurchase their shares.

Okay, so enough about these dumb companies that like to light money on fire. How about we highlight the opposite? Let’s talk about companies that are smart enough to conduct secondary offerings to increase their cash moat when their stocks are flying high or are smart enough to use their stock as currency to make strategic acquisitions.

The first company is Shopify ($SHOP). This company has been growing year over year like crazy. On a GAAP basis, they’ve yet to announce positive earnings, but nevertheless, the market seems to love their stock even though it’s valuation is certainly considered very high. 

Here’s a company with over $1.5 billion in cash and marketable securities on their balance sheet and very few liabilities and no long term debt. They were able to easily raise $400 million through a stock sale which will bring their war chest to around $2 billion. That’s smart money management if you ask me.

The second company is Twilio ($TWLO). This company is also a high growth company that has yet to deliver profits, but has a strong cash position relative to debt. Not quite as flush with cash as $SHOP, but Twilio was recently able to structure a $2 billion acquisition of another high flyer called SendGrid ($SEND) using, not debt or cash on hand, but their stock. Remember when companies used to go public so they could use their stock to do these type of deals? Oh yeah, you may have forgotten.

The moral of the story is that both $SHOP and $TWLO probably have stretched valuations, but I surmise that their stock will significantly outperform many companies who are actively repurchasing their stock.  Growth and profits are two highly sought after features when picking stocks, but more importantly, watch what companies do with their cash and stock. If highly profitable bluechip companies still make poor decisions with their stock, it’s going to be you that’s left holding the bag.

Want to know which stocks I think are going to rise 25% in the next 6 months? Purchase my StockMoons picks today.

One Sheet

Mark Cenicola strips away the hype and gives his take on technology and its use in establishing a better business online.

Hard hitting presentations that really get to the core of today's technologically advanced business economy, Mark demonstrates effective strategies for integrating the Internet into a company's operations and giving their website an expanded role in contributing to the success of their business.