I like buybacks and I cannot lie
You other Fools can't deny
That when a firm sees its shares just going to waste
And it waves some cash in Mr. Market's face
Its shares get sprung ...

This riff on "Baby Got Back" is hereby terminated by order of the FCC -- partly on fears that it will eventually turn too blue for a family publication. But mainly out of pity, and a concern that the riffer will get hung up on an investing-themed analogue for "Ooh, Rump-o'-smooth-skin," and be unable to continue.

Behind the music
Sadly, shares of fashionista bebe (NASDAQ:BEBE) have not in fact gotten "sprung" this morning, despite news that the firm will be buying back 5 million shares, or 5.4% of its total shares outstanding, from ex-vice chairwoman Neda Mashouf. Ex-wife of current chairman of the board Manny Mashouf, Ms. Mashouf will be unloading the shares at an average price of $13.39 per stub, or a 2.5% discount to what the shares were fetching at the close of trading yesterday.

Why aren't investors cheering their company's purchase of shares at a discount? Let me count the ways:

  • It could be because everybody's bebe stock has been trading for a discount lately. The shares are down 40% over the last 52 weeks, despite the S&P 500 having risen 12% over the same period.
  • Or perhaps it's the miserly size of the discount -- and the transaction -- that's keeping investors in their seats. As insider sales go, this one offers neither the 10% discount to market price we saw in Mine Safety's (NYSE:MSA) 2005 buyback, nor the massive reduction in share count of Middleby's (NASDAQ:MIDD) 2004 cashout.
  • Or the shares being bought may have less influence over investor sentiment than the ones remaining in Ms. Mashouf's ownership.

You see, even after letting go of the 5 million shares, she will still hold 11.6 million shares -- 13.1% of shares outstanding. Investors may worry that that's plenty to flood the market, and depress bebe's share price further, should she decide to sell more. Given the size of today's sale, investors may be right to think this is precisely what Mashouf intends to do. In which case, with the shares already down to a paltry PEG of 0.91, they might actually want to take the other side of that trade since clothiers such as Guess? (NYSE:GES) and Gap (NYSE:GPS) command considerably higher PEGs of 1.06 and 1.63, respectively. However, Mashouf has at least 30 days until she is allowed to unload any additional bebe shares.

Might Mashouf's decision to cash out have something to do with -- gasp! -- the firm's business prospects? Check out its most recent earnings news and judge for yourself:

And when you're done, don't forget to see why our stock gurus at Motley Fool Stock Advisor recommended bebe. If you're not a member, stop here first, to pick up a free 30-day pass. Middleby has been recommended by the Motley Fool Hidden Gems newsletter.   

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.