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Q: Stock price boosting ( Answered 5 out of 5 stars,   1 Comment )
Question  
Subject: Stock price boosting
Category: Business and Money > Economics
Asked by: mrcym-ga
List Price: $20.00
Posted: 02 Feb 2006 18:13 PST
Expires: 04 Mar 2006 18:13 PST
Question ID: 440721
How could a company boost its stock price in the long term without
compromising its current market position?
Answer  
Subject: Re: Stock price boosting
Answered By: wonko-ga on 02 Feb 2006 20:26 PST
Rated:5 out of 5 stars
 
Generally speaking, a company's best approach for boosting a share
price is to grow its earnings and/or, if applicable, increase its
dividend payment.  How this is done is what determines whether or not
its current market position is sacrificed.  For example,
indiscriminate layoffs or cuts in research and development could
dramatically boost profits in the short run, but could have very
negative consequences in the long run.  However, acquiring more
productive personnel or improving the productivity of a research and
development activity could be extremely beneficial even if cost
reductions were not achieved.  Another approach is purely financial in
nature: the company could buy back shares so that fewer shares would
be outstanding, thereby increasing the effective earnings per share
even if earnings did not grow.

Various methods exist to boost a firm's share price through growth. 
Identifying attractive investment opportunities, such as opportunities
to develop new products or enter new markets, can create profitable
growth.  Acquisitions are another popular method for generating
growth.  Although the acquiring company's stock price typically falls
at the time of acquisition, the right acquisition can pay off
handsomely.  All of these methods can boost a company's share price
without sacrificing its current market position.

Cost-cutting is another area that has the potential to boost a firm's
share price, but it carries the risk of compromising a firm's market
position if it is done improperly.  Identifying underperforming
businesses, wasteful processes, and unproductive employees and
eliminating them can boost a firm's share price while leaving its
competitiveness intact or even increase it.

A third area that has gained increasing prominence is identifying and
eliminating unprofitable customers.  Sometimes, there is little point
in having a large market share if a large percentage of that market
share is undesirable.  Customer segmentation can leave the company
firmly entrenched in its desired target market while improving its
financial performance even if its overall market share is decreased.

Another purely financial approach is to increase the firm's dividend,
either because earnings are growing or because the firm lacks
attractive investment opportunities.  A company's market position may
be strong but further investment in that market may be unwise,
resulting in shareholders favoring return of capital.

Finally, firms that are at risk of financial distress because of high
debt levels can improve their stock price by paying down debt.  When
such payments are made because of a firm's improved financial
performance, rearranging its capital structure can be done without
compromising its current market position.

Sincerely,

Wonko

Sources:

"The Growth Imperative" Oligopoly Watch (August 16, 2005)
http://www.oligopolywatch.com/2005/08/16.html

"What makes a share price move?" BBC (December 2, 2005)
http://news.bbc.co.uk/1/hi/programmes/working_lunch/4493088.stm

"The Price May Be Right" Globe and Mail (December 21, 2005)
http://www.theglobeandmail.com/servlet/story/RTGAM.20051221.rmtaylor1223/BNStory/specialROBmagazine/

"Principles of Corporate Finance" fourth edition by Brealey & Myers,
McGraw-Hill Inc. (1991) pages 49-60).

Search terms: grow stock price
mrcym-ga rated this answer:5 out of 5 stars
This is just what I wantd and is succinct as well as documented so
that I can read more on the subject. Very satisfied!

Comments  
Subject: Re: Stock price boosting
From: frde-ga on 03 Feb 2006 06:36 PST
 
Assuming that 'the long term' really means 'without playing short term
tricks', and you are not interested in mirages like share
consolidation ...

Find a friendly banker, use them to finance the purchase of viable
companies and run them well or sell them at a profit.

If one can borrow at 6% and purchase viable companies with a P/E of 10
(internal yield of 10%) then one can hike ones 'profit' by 4% of X,
where X is a very variable sum.

In effect that is what Private Equity companies are doing, but the
snag is that if one is perceived as successful then someone will buy
you, which means that your opus ceases to exist.

If one does it right, then one will get rather large, and with
sufficient diversification will be included in multiple tracker
indices (which automatically hikes the stock price).

The sensible solution is to clear out of the market and do things
right without having to pay ridiculous fees, tart to the punters and
be vulnerable to takeover.

A dual level share structure would do the same trick ...

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