I have always hated these kinds of moves, especially for companies that are not swimming in cash. Debt to equity for the company is 1.19, and cash is 65M(if that number is correct, I seem to recall GURE has had some difficulty with their auditors) so that doesn't leave a lot of excess net worth to throw around. All this achieves is reducing the working capital of the company and limiting it's ability to invest. In a climate like this cash conservation and careful watching of expenses is prudent, and gives the company a chance to look for attractive expansion targets. Given that near and long time outlook is cloudy, the share repurchase move can only be 1 thing: Giving major insiders a chance to dump shares without tanking the stock too much. It also tells me that the company has no intention of long-term survival or ambitions of becoming a bigger player in their market. Which also implies that they have no intention of looking after long-term shareholder value. If it designed as a-move to ensure continued listing on Nasdaq, it will not work. This kind of artificial manouvering (reverse stock splits, share buybacks and similar lose moves) for companies already in a downward spiral tends to only accelerate the fall, once the initial effect has worn off.
Here are some 3/31/2013 numbers based on the Gulf Resources Q1 2013 balance sheet at sec.gov
Total liabilities $12.7 million, equity $266.5 million, debt-to-equity (using "debt" as total liabilities) .048, cash $78.5 million, shares outstanding(diluted) 38.5 million, cash per share $2.04, current assets $115.07 million, current liabilities $9.79 million, working capital $105.3 million, current ratio 11.75.
This is a very strong balance sheet, assuming the reported numbers are true. It makes sense for the company to buy shares to keep the stock above $1, the threshold for Nasdaq de-listing. Given the amount of cash the company has, $2 million in purchases is not much.
Sentiment: Strong Buy
Its a clown move in that they are only buying $2M. If they really have $65M in cash, they shouldn't have limited themselves to buying anything less than $10 or 15 mil IMHO.
Yes, they could save the money to expand business, but with bromine prices where they are, is there really a need for a gigantic expansion of capacity? Even if they ran out of cash or had far less many reputable companies can borrow to expand (or buyback shrs and pay dividends). But are there any places they can invest ~$1 to buy supposedly $6 or 7 worth of assets? Only they know what those assets are really worth. Its about time they announced a plan to buyback some shrs and I applaud them for taking that step.
I might even buy a few shrs, but will likely wait until Aug to see if they actually buy any significant number of shrs this time around. On the more negative side, I have to ask myself if bromine is growing market or declining one that I want to invest in. Anybody have any idea on what % of their bromine is used in petroleum, fire retardants, fumigants or other markets? Or perhaps not just where their bromine is used but for the market in general, as that is what drives the price of the crude bromine. It may not be just be weakness in the Chinese economy but there is always a constant push to use safer chemicals for fire retardants, etc. It might be more difficult to find a safer fumigant (as these are all nasty) or the uses in the petroleum industry will tolerate chemicals as that is their bread and butter business. But for fire retradants, which I believe is the largest end use of bromine, I suspect where consumers are involved there will be a stronger push to find alternatives that are safer, and maybe this is another factor eating away at the bromine market.
For GURE to expand I think their chemical group has to lead the way to truly see their business grow, i.e selling products to treat waste water,etc. That group at least had a 3% inc in business over last year.
One thing you have to look at when considering if $2m is ridiculous or not is the relationship of these $2m with the float and the Buy back rules, the current volume of the last 3 months has been less than 100,000 shares a month, that means that if they buy the daily limit of 25% of the volume a day, they could buy 25,000 shares a day, even assuming a price at $1.33/share that would allow them to buy 1.5m shares or to buy shares everyday for 60 trading days or about 3 months. Of course the share price could vary and volume could vary but right now share price is at $1.10 and the last 3 month volume is at 85,000 shares a day. When they will have used up all the money at best in 3+ months from now they can authorize more share purchase if they feel that the stock price is still way too low. Also looking at the float, if they bought 10% of the float, it would represent 2.5m shares and a 10% of the float buy back is not small, , at current price it would cost them $2.75m so again a $2m Buy Back using those numbers is not completely crazy.
Just wanted to put things into perspective, if they assigned $15m as you suggested at current market price they would buy over 50% of the float, this would be a ridiculous number to announce as at current volume it would also represent 2 to 2 1/2 year of buying for a 12 month authorization !!. Yes I was hoping for an announcement more around $4m or $5m which would have been very significant but $2m is not ridiculous when you consider those facts. I just hope that they will start buying shares at the current ridiculous price and before the news of the final lawsuit settlement which will certainly push the stock price a lot higher or a positive turn in the Bromine demand.
On your last point, I fully agree to play this game they have to move more aggressively in the Bromine Chemical Business as this is where the game will be played and won.
OF COURSE it's a clown move. What else would you expect from a clown company?
Every pumper on this POS has been wrong a looooong time. I'm very happy to have taken their money.
Sentiment: Strong Sell
Don't be too hard on Linux - I remember him from last summer - a good "neutral" investor who agreed that cash would be best used for business expansion at a time that many were clamoring for a buyback or go-private deal. Sold GURE at a loss if I remember - but was rooting for longs at the time we sent a letter to the Board. It is apparent from your post that you made some assumptions that do not hold. Technically, the company is swimming in cash - along with some high quality AR that has a good track record of conversion (albeit somewhat generous on customer terms). The recent audit was clean - and looks like we'll have some stability with the current auditor. Working capital is strong - internally generated cash flow is financing large amount of business while being somewhat shielded from taxes via aggressive depreciation. Internal financing was also sufficient for major repair/maintence work of facilities - and they were still able to puchase an office building in metro area (which looks more aligned with a publicly traded company from the pictures) - without a major reduction in cash balances. Long-term outlook is good in my opinion - GURE has positioned itself for growth.
Being away from the stock for awhile, you missed some tough times this past Fall as the bromine market bottomed out. Starting to see some improvements now - and management is a little more responsive than 2nd half of last year - but still needs improvement. The repurchase is meant to place a floor on the stock to diminish delisting risk - but I doubt that insiders are going to dump any shares. Ming Yang has honored his commitment to hold his shares - and management at some point may realize they need to use their options and buy some shares (albeit a little hard to do when your salary is only $40K). I believe the long-term strategy of the company has remained steady - conservation of cash, expansion of production, and building a larger customer base - could have been a lot worse.
Sentiment: Strong Buy
Yes, I have not followed this stock very closely after I sold out, I think at a 25% loss at $1.25 or so. In general, I strongly dislike share buybacks, so those comments still stand. It is encouraging that it might turn out the company is for real, and as far as I can tell, nothing substantial enough to generate headlines has come out to confirm the allegations in the class action suit. So the class action exposure is now a risk I consider extremely low (good for longs, can buy at a discount while it is still dangling in the air) Looks maybe they were a bit sloppy with SEC regulations in the beginning, and didn't realize what it takes to be a publicly traded company on a US exchange. If it is now considered that the company is for real, then the only downside I can see is the economic climate for Chinese manufacturing going forward. US has fallen, but has already crept back to new highs. Europe is still struggling a bit, and will likely recover slower, as they have a few albatross countries. Developing economies such as Thailand, Philippines, Brazil etc. are still going gangbusters. WhIch is good for world economy, but also good for China exports. I might get back into GURE again, but not at pennies over the dollar. Either they have to get so low that it is way under a dollar, or sufficiently above a dollar so I don't have to watch every day. I am not an active investor, (nor a very good one) so it can be weeks between I check prices.
What are you talking about ? Gure is a cash rich company they have over $65m in cash and no debt what you see on yahoo finance showing as debt is a long term capital lease obligation. Again the debt to equity ratio that yahoo finance is showing at 1.19 is wrong, even if they had $3m in debt they have over $264m in equity. Just read the 10K instead of relying on yahoo financial information or whatever information you are looking at. By the way Gure had no difficulties with their Auditors, they had an issue in their 2010 report that was documented but not material enough to avoid them signing the books but in 2011 and 2012 no issue was reported. Again do your home work before writing a comment like this.
Yes the share buy back was certainly because the stock price approached $1 to avoid delisting and I agree that Management has shown no interest so far at increasing the stock price but with all the cash they have I would have been shocked if they didn't announce a buy back and this would have made me question their financials but they did and I am reassured. I think the main reason why they do not actively try to push their stock price up is certainly related to the lawsuit as it would show them as a company with a low market value and could help them negotiate a better settlement number but who knows. They will nevertheless defend the $1 price be sure of it.