Shares of AMTD Digital (NYSE:HKD) – billed as a one-stop digital solutions platform based in France – popped dramatically higher on Tuesday. Driving sentiment was management’s announcement that the company’s board of directors authorized a new share repurchase program. While investors eagerly lifted HKD stock to a strong double-digit return, bigger questions hang over the odd enterprise.
According to the accompanying press release, AMTD may purchase up to $30 million of its American depositary shares or ordinary shares until the close of business on Dec. 29, 2023. Further, the statement notes that the company’s proposed repurchases may be made from time to time across various transaction mediums. These include in the open market at prevailing market prices, in privately negotiated transactions and in block trades.
Last week, AMTD made news when it announced a significant increase of over 50% in net profit after taxes for the fiscal year that ended April 30, 2023 (relative to FY 2022). At the time, the company’s press release stated that “AMTD Digital has embarked upon impressive new innovative business approaches resulting in a strong momentum of growth trends and developments after its [initial public offering] listing last year.”
Skepticism Lingers Over HKD Stock
With HKD stock gaining over 40% for the day so far, the near-term print appears promising. In the trailing five sessions, AMTD’s shares find themselves up over 20%. And in the trailing month, shares gained about 8%. Still, skepticism lingers over the enterprise.
For one thing, zooming out the time period reveals a less flattering framework. In the past six months, HKD stock slipped about 13%. Since the beginning of the year, shares fell around 27%. Therefore, the company still has a credibility challenge to overcome.
Plus, buybacks themselves represent a source of controversy. On one hand, buybacks may reward shareholders. But on the other, they tend to reduce capital that could be deployed more profitably by investing in the underlying business, according to The Wall Street Journal.
In fairness, investment data aggregator Gurufocus shows that AMTD has no debt on its books. Still, the buyback may raise eyebrows as it’s still essentially a growth enterprise. Generally speaking, stock buybacks are implemented by large, established and profitable enterprises.
Why It Matters
As of this writing, no analyst covers HKD stock. Additionally, without options information, it’s difficult to gauge what the smart money may be doing with the trade. Given the limited data stream, AMTD is only appropriate for speculators.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
