Why WebMD Shares Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health information services provider WebMD (NAS: WBMD) are dipping 10% after the company announced the preliminary results of its tender offer to repurchase shares.

So what: Some moments leave you scratching your head -- and this is one such moment. Based on its preliminary report, WebMD expects to use $150 million in aggregate cash to acquire 5,769,230 shares of its own stock, or 10.15% of its outstanding shares, at $26 per share. This represents a 10% premium to its currently quoted price.


Now what: Now for that head-scratching part. Usually when a company repurchases its shares, the stock responds by moving higher. Fewer outstanding shares often means easier EPS comparisons and it also shows conviction in a company's long-term business outlook. We're definitely not seeing that happen here today. WebMD has cautioned that its business has weakened recently and EPS estimates have been slashed in accordance with that warning. Perhaps this is the shareholders' way of telling the company to focus more on growth and less on trying to inflate its EPS with fewer shares available? Either way, I'm leaving this stock be.

Craving more input? Start by adding WebMD to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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