Shares of RLX Technology (RLX -0.43%) were surging today after the Chinese e-cigarette company announced a share repurchase program in response to its dwindling stock price.
Investors cheered the news, sending the stock up 25% as of 2:06 p.m. ET.
RLX said in a press release this morning that its board of directors had authorized a share repurchase of up to $500 million by the end of 2023.
That sum was worth 8% of the company's market cap before the announcement, so it's surprising to see the stock make such big gains on just the share buyback announcement. The more likely explanation is that RLX has been highly volatile recently and investors see this as a vote of confidence from management and a statement that it believes that the stock is cheap.
RLX is coming off a disappointing earnings report, in which revenue fell 34% to $260.2 million in response to a crackdown on vaping by the Chinese government. The stock tumbled on that report, but is now trading above where it was before it announced earnings.
RLX went public at $12 a share in January, and the stock is still trading below $5, showing that it's fallen substantially from its debut. The share buyback program alone isn't enough of a reason to buy the stock, and investors should expect RLX to continue to be volatile as it faces a number of uncertainties, including Chinese vaping regulations, the broader crackdown on U.S-listed Chinese companies, and tensions between U.S. and China.
Either way, today's news shouldn't change your investing thesis.