plant science guy said:
My company announced in their big town hall this week that they will be focusing on deleveraging over the next 18 months.
How does that tend to affect stock price and is it insider trading if I act on it?
Edit to add I've already tried google and got mostly useless answers.
I do not know about the insider trading piece but I can maybe speak to the deleveraging aspect.
Deleveraging in general tends to be a good thing. What I would want to know is why the change in cash strategy? Companies that generate free cash flows can pull a few levers with that cash:
1) Return capital to shareholders through dividends or buybacks
2) Reinvest in the business (acquisitions, growth capex, headcount increases that translate to productivity increases, etc)
3) Deleverage
If a company switches the free cash flow strategy from supporting growth mode to deleveraging the balance sheet, that could send a negative signal to markets. The company is saying "hey, we are a little anxious about our growth prospects next year and want to be a bit more defensive. We are going to focus on deleveraging our balance sheet to ensure we don't back ourselves into a corner from a cashflow standpoint."
It can be a positive if the company comes out and says "hey, we are continuing on our growth trajectory and don't see any hiccups there, but we are generating a ton of free cashflow. We are going to start to deleverage the business at the same time we are seeing a tremendous amount of growth.
Both scenarios could be positive if the company has already signaled to markets growth is slowing. A deleveraging announcement could pop share prices if they've already been under pressure.
Hope this may help.
