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The GEO Group, Inc. Message Board

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  • flipper_58 flipper_58 Dec 20, 1999 10:50 AM Flag

    New Lows...Baby

    After re-reading my post I worded it badly, my
    gift is certainly not in my writing skills. Forget
    P/e's for a second, lets look at raw numbers.

    My
    return on equity (shareholders equity or book value) is
    of course different than my stock price (in most
    cases). WHC shareholder equity (which includes intangible
    assets)and book value are roughly $5.25/share. Trailing 12
    months WHC earned $.92. Using those numbers gives you a
    ROE for WHC of 17.50%($.92/$5.25 after tax) based on
    it's ASSET value or shareholder equity per share. That
    means to me, WHC is able to earn 17.50% on it's capital
    base or net assets, not bad at all.

    Now the
    stock price is $10 which is almost twice the value of
    it's shareholder equity price. The return on the
    shareholder's equity price, as I call it, (you and I have to
    pay a premium to book value or $10) is 9.2% or
    $.92/$10 (after tax). For every $1 you and I invest in at
    the market price we are getting 1/2 the earning
    return as the company is.

    When a WHC buys it's
    own shares back it's getting a considerable less
    return then applied in it's business based on trailing
    numbers, as I see it. Of course this is a rear view mirror
    approach.

    The inverse with the P/E you mention is opposite.
    Invest $1 in a 40 P/e company earns you 1/40 of that
    dollar yearly or $.04. A company with a 1 P/E earns you
    $1 and a company with a .50 P/E earns you $1.50 for
    each dollar invested. The higher the P/E the lower the
    percent of the dollar you are receiving. Your associcaing
    p/e's with growth rates I think.

    As I have
    always understood it, if WHC's ROE was LOWER than it's
    P/E in general then it should buy it's own shares
    back. But of course ROE is an historical
    number.

    So why do so many companies buy their own shares
    back? I have no clue financally other then it's easier
    than creating new business.

    Now CPV is a
    classic case for a share buyback. Book value is 35% ABOVE
    it share price. It flow of projects nets roughly 3%
    on a cash basis. It's trailing ROE is 10.8%(based on
    a $2 FFO, $2/$18.45 BV) and it's return on it stock
    price is 16.60% (based on $2 FFO, $2/$12) clearly CPV
    is best to buy it's shares then use capital to do
    deals. If the past is your guide.

    You must also
    realize that treasury shares REDUCE book value. From an
    accounting standpoint the shares are redeemed. So share
    buybacks only use is a slightly accretive boost to
    earnings.

 
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