Mark Cuban on Stock Buybacks: “Not Now, Not a Year From Now”

Entrepreneur, television personality and sports franchise owner Mark Cuban was adamant that companies looking for bailout assistance from the federal government should only do so under one condition: they should not be allowed to buy back stock–ever.

“No buybacks. Not now. Not a year from now. Not 20 years from now. Not ever,” Cuban said on an episode of CNBC’s “Squawk Box.” “Because effectively you’re spending taxpayer money to buy back stock and to me that’s just the wrong way to do that.”

“Whatever we do in a bailout, make sure that every worker is compensated and treated equally — in that the executives don’t get rewarded extra to stick around because they got nowhere else to go,” Cuban added.

Cuban’s comments come after large airlines like Boeing are requesting massive monetary bailouts to the tune of “a minimum of $60 billion in access to public and private liquidity, including loan guarantees.” This could be a point of contention given that Boeing’s free cash flow “for 10 years totaled $58.37 billion, while the company spent $43.44 billion, or 74% of free cash flow, on stock repurchases,” per a MarketWatch report.

That might not bode well for investors despite the airline industry being one of the hardest-hit sectors as a result of travel restrictions implemented around the world in an attempt to curb spreading of the coronavirus. It’s a slippery slope to climb for Capital Hill, but U.S. President Trump is already throwing his support behind these bailouts–a familiar chord circa the 2008 financial crisis when certain banks were “too big to fail.”

“Most investors know that cash flow is more important than earnings, because revenue can be booked, and profits shown, before a company actually receives payment,” the MarketWatch report noted. “A company’s free cash flow is its remaining cash flow after planned capital expenditures. Free cash flow can be used to pay for dividends, buy back shares, expand operations or invest in other improvements for the business.”

“Companies that built up hoards of cash, such as Berkshire Hathaway have been criticized for doing so because it lowers a company’s return on invested capital,” the report added.

One ETF to watch as the airline situation plays itself out will be the US Global Jets ETF (NYSEArca: JETS). JETS seeks to track the performance of the U.S. Global Jets Index, which is composed of the exchange-listed common stock (or depository receipts) of U.S. and international passenger airlines, aircraft manufacturers, airports, and terminal services companies across the globe.

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