DEEP RESEARCH · INBODY IR COMMUNICATION
Additional Email to InBody IR: Cost of Capital, Free Cash, and Shareholder Communication
A shareholder’s request for clearer disclosure of long-term financial goals and capital-use plans
0. Bottom line first
If InBody is in a phase where growth investments partly hurt profit growth, shareholders need clearer long-term financial goals and capital-use plans. Management makes the decisions, but shareholders share the responsibility through the stock price reflected by the market.
This email was a personal opinion I sent in November to receive answers at the shareholders’ meeting. I did not necessarily expect a reply, but I had planned to share one if it arrived. Since no reply has arrived yet, I am sharing it first.
IR team
A personal shareholder opinion sent with the shareholders’ meeting in mind.
2024. 11. 30 2:42:29 PM
The subject was “RE: [External]RE: 243Q quarterly report inquiry.”
More communication
A request to share long-term goals and capital-use plans more clearly with shareholders.
1. Background of the email
I first thanked the company for its detailed reply and wrote that I could better understand its operating situation and strategic direction. I then shared several thoughts as an individual shareholder, hoping they could help strengthen the company’s continued growth.
In a period like this, when the company is growing while partly sacrificing profit growth, I believe it needs to communicate more with shareholders. Decisions are made by management alone when long-term financial goals are not shared, but shareholders also bear the consequences through the stock price reflected by the market.
The company is supplementing this through treasury-share purchases and cancellations, but there is still something lacking in communication.
Related previous reply post: [InBody] 3Q24 quarterly report IR inquiry reply email
2. Additional concern: growth versus cost of capital
The additional concern is growth relative to the cost of capital and the use of retained earnings. Personally, I think the cost of capital can also be viewed as the annual stock return level shareholders expect. Shareholders invest expecting that level of return. If the company will earn less than that, I think it should return company money to shareholders.
InBody’s continued accumulation of retained earnings shows stable financial health. But from a long-term perspective, there are several concerns.
The market always values companies from a long-term cash-flow perspective. No matter how much free cash there is, if it cannot be used in a profitable way above the cost of capital, for example 9%, the stock can remain undervalued.
| Assumption | Present value | Meaning in the email |
|---|---|---|
| Free cash discounted by 5% per year | About 61% after 10 years | Idle cash loses long-term value. |
| Free cash discounted by 5% per year | About 37% after 20 years | Inefficient cash holding can reduce corporate value. |
In this way, if free cash is left inefficiently idle over the long term, the company’s market value can decline sharply. This is especially prominent when management does not clearly present a capital-use plan or when shareholder-return policies such as dividends and buybacks are insufficient.
3. Reinvestment and shareholder-return policy
Simply accumulating free cash is not enough to show the company’s full potential. If it is not used as a growth engine, or if shareholder value is not improved through dividends or buybacks, it can be treated as “inactive capital” and become a reason for market undervaluation.
4. Transparent goals for long-term trust
I viewed the IR team’s comments on global market expansion and new investment strategy as very positive. However, I think it is important to prove to the market that these investments and capital-use plans can actually generate returns sufficiently above the cost of capital.
I requested that the following items be shared regularly.
- Target growth rate relative to the cost of capital
- Plan for using free cash: dividends, share-buyback criteria, and similar policies
- Expected results from global market expansion and new investments
5. Opinion as an individual shareholder
InBody is a company that has grown steadily on distinctive technology and strong trust in its market. I think there are very few companies in the world that can grow for this long in a market without a clearly defined competitive market.
However, to prevent current free-cash accumulation from negatively affecting shareholder value and market valuation over the long term, I believe the company needs to share clearer capital-use plans and long-term goals with shareholders.
I sincerely support the company’s continued growth, and I hope this opinion can serve as a small reference for the company’s strategic decision-making.
Sources
- Original post: https://m.blog.naver.com/PostView.naver?blogId=star_of_self&logNo=223693184601
- Previous reply post: https://m.blog.naver.com/star_of_self/223667579116