Digital solutions platform AMTD Digital (NYSE:HKD) captured retail investors’ attention on Friday. Management announced an increase to its previously disclosed share buyback program. Fundamentally, share repurchases represent one method of returning value to shareholders (the other primary method being dividend distributions). Still, it’s an odd decision, leading to unusual dynamics for HKD stock.
According to the company’s press release, AMTD’s board of directors authorized an increase to the existing share repurchase authority. Previously, on Aug. 22, AMTD launched a new share repurchase program under which the entity may buy back up to $30 million of its American depositary shares (ADS) or ordinary shares until the close of business on Dec. 29.
Under the just-released statement, the multi-service platform may now repurchase up to $50 million of its ADS or ordinary shares. The deadline of Dec. 29 remains the same.
Despite the seemingly positive news, investors should be cautious about HKD stock. After closing at $5 on Aug. 21, the original share repurchase program boosted shares. Still, the uplift was short-lived, with HKD now trading around $5.51 at the time of writing.
HKD Stock Represents a Headscratcher
Featuring a market capitalization of $1.05 billion per Google Finance, AMTD isn’t exactly a micro-cap enterprise. At the same time, it qualifies as a small-cap company, and such entities generally don’t announce share buybacks. After all, small firms tend to focus on expansion. And that brings up the oddity over HKD stock.
While the first repurchase program announced skyrocketed AMTD’s market value, this addendum has not achieved the same result. To be fair, HKD stock did pop higher on Friday morning. However, as of this writing, it’s only modestly trading above parity against Thursday’s close.
According to a Nasdaq post, companies under the micro and small-cap designation should generally avoid share repurchases if they are unprofitable. On the flipside, the post argues that “a tiny percentage of micro- and small-cap companies that have tons of cash flow, are heavily owned by institutions, and are slow-growing” may see some benefit.
By this standard, HKD stock presents risks. Based on information from investment data aggregator Gurufocus, AMTD prints positive free cash flow (FCF) annually. However, it features strong revenue growth when comparing fiscal year 2023 to FY 2022. As well, Gurufocus does not show any insider data.
Why It Matters
As investors might expect, no analyst covers HKD stock, according to TipRanks. Frankly, it’s too risky. Since the beginning of the year, shares fell more than 44%. In the trailing one-year period, the company has lost 92% of market value.
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.
