Please ensure Javascript is enabled for purposes of website accessibility

Why Vipshop Stock Skyrocketed Today

By Evan Niu, CFA - Mar 30, 2021 at 11:44AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese e-commerce specialist announces a $500 million buyback program.

What happened

Shares of Vipshop Holdings (VIPS -0.47%) have skyrocketed today, up by 13% as of 11:10 a.m. EDT, after the company announced a share repurchase program. Vipshop's board of directors has authorized a $500 million buyback program, which it can conduct over the next two years.

So what

The Chinese e-commerce technology company plans to repurchase Class A shares at its discretion using a combination of open market purchases, privately negotiated transactions, block trades, and potentially other methods. One Class A share of Vipshop is equal to five American depositary shares (ADS).

Green stock chart going up

Image source: Getty Images.

Vipshop's board will review the program on a periodic basis and may adjust the program's terms, such as its timing or size. Vipshop will fund the buybacks with existing cash on hand.

Now what

Investors tend to like buyback programs for a number of reasons. For starters, repurchase authorizations can sometimes be interpreted as a bullish signal that management believes the stock is undervalued. Additionally, buybacks can also potentially be accretive to earnings to the extent that the repurchases may reduce the total number of shares outstanding, or offset dilution related to stock-based compensation.

A $500 million program may be accretive when compared to Vipshop's current market cap of $21.8 billion. Vipshop finished 2020 with approximately $2 billion in cash on its balance sheet and the company generated $1.1 billion in operating cash flow in the fourth quarter. Between cash on hand and ongoing cash generation, the company will be able to easily fund the buybacks.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Vipshop Holdings Limited Stock Quote
Vipshop Holdings Limited
VIPS
$8.39 (-0.47%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
349%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.