$ 100 million is about 17% of the company's worth which they are buying back. Stock need to atleast go up 15 % from here. This is a perfect set-up to take company private. Longs hold on to your shares!!
This is how I see it. I am guessing that the tangible book of SWHC is around $3, which means management is willing to pay over 3x tangible ($10) for $100 million worth of shares. So yes there is a cost to those who chose to hold their shares, some of their equity. The reduction in shares though would then increase EPS for those who choose to retain there shares assuming management can continue to produce earnings at the current level. What if earnings drop to some where in the vicinity of last years 41 cents as a result of a reduction in gun fever. In that case management would have paid for the stock at a PE level of 25. Management has already said that they can not increase production so revenues are capped in any event unless they make an acquisition which is another can of worms. Sure seems to me that it is a good set up for someone, insiders or employees to get out of their shares on the open market while management supports the share price with an announced buy back. So is the stock really worth 15% more as a result of this announcement, to me only if there is a way they can increase the company's earnings past it's current level.
The enthusiasm and positiveness over share buy-backs strikes me as foolish. Consider the following for a company with 1 million shares and $1,000,000 cash, $1,000,000 earnings per year, and a current market share price of $10.00
Suppose they use the $1,000,000 to buy back 100,000 shares. There would then be only 900,000 shares earning the same yearly $1,000,000 = $1.11 per share (11% more). HOWEVER, the $1,000,000 cash is gone.
Each share value should fall by $1.00 because the $1,000,000 cash is gone from the company. So share value falls to $9.00. However, because earnings are now 11% higher (due to 10% fewer shares), the shares should go up by 11%, which is $.99 (11% x $9.00 = $.99). So the share price should remain unchanged at $10.00 (the 1 cent difference is due to rounding the earnings per share increase to 11%)