I see that GM plans on buying back stock to fend off the unwanted attention of several shareholders who are/were thinking of filing suit against the company for building up a “cash hoard” instead of giving all of its profits (“returning cash”) to shareholders. Rather than face its tormentors in court – as the company should – it has knuckled under to pressure (including one bozo who demanded a seat on the board (for what reason he merited one, I don’t grasp).
This is the same company that went bust back in 2008-9 and had to go crawling to the governments of Canada and the US for bailout money. And now it is determined to pay out its cash cushion just to fend off greedy speculators rather than face them down in open court and call them what they are, leaches on the face of the capital markets.
Worse than that, when we measure the balance sheet strength of GM today using the SVA “Stability Ratio” as the fundamental measure of balance sheet quality, it turns out that the quality of the GM balance sheet today is only somewhat better than the GM balance sheet in 2008 before plunging into bankruptcy. Indeed, given the highly cyclical nature of the auto business, the Stability Ratio of today would only be rated as reasonably but far from unduly strong. We would certainly not consider that the company is a hoarder of cash!
Looking at the valuation of the company in the stock market, I see that despite the apparently rosy outlook for profits that the stock market is refusing to pay up to the usual highs that the stock enjoyed before 2008-9, and if one of the reasons is that management is willing to back down to any two-bit hyena than it does not merit anything more as the financial risks are too great to bear in another cyclical slowdown.
From my point of view, we can look on this company and happily eschew its stock for any kind of investment – and that is our stance. “Interesting but…”. Put yourself in the shoes of the governments who bailed them out, and the unions who still rely on the success of this company, and the reaction to this story is – or should be – a lot different!