China Nepstar (NYSE:NPD) announced a $5 million USD share buyback this week, which helped to push the stock up a whopping 22% on a day when both US domestic shares and US-listed China stocks traded mostly lower. As we've argued in the past, the market has been just abusing this stock, and it had shed nearly -25% YTD before the announcement (that figure is worse if measured from its peak in March, a near -60% fall).
The buyback amount wasn't huge, but there may be some significant information in the timing of the announcement.
As a recap, the business has been under attack from a few different angles: rising rents and labor costs, official price controls squeezing margins, and the Alibaba (NYSE:BABA) threat for online drug sales, giving investors plenty of reasons to sell.
But despite net losses showing up on quarterly P&Ls, management has been making progress on addressing the multiple issues facing the business. Comparable store sales, a measure of how well mature (i.e. like-for-like) stores are performing, have averaged over 7% during Q1-Q3 this year. Top-line revenue has grown about 8% during the same period. Considering the pressure facing the Chinese economy and the industry overall, those results are noteworthy.
Additionally, Nepstar's financial position has been relatively stable. There was no debt reported on the Q3 balance sheet, and its liquid assets were more than enough to satisfy all of its short-term liabilities.
So management declaring a buyback, now, conveys its view that the stock price undervalues the company, but also may signal confidence with Q4 results (a seasonally strong quarter which has concluded).
Official results won't be out for a few more months, but this seems to be a bullish signal from management, one deserving investors' attention.