Key Takeaways
- Robinhood shares jumped more than 4% in Tuesday’s extended session after the online discount brokerage firm unveiled a $1 billion stock buyback program.
- The company said it would repurchases the shares over a two to three year period, starting from the third quarter of this year.
- The stock buyback program, coupled with recent innovative offerings, position the company as a mature financial services provider, potentially helping it gain additional investment interest.
- Robinhood shares may encounter selling pressure around $35 near the stock’s initial breakdown point in November 2021.
Robinhood (HOOD) shares jumped more than 4% in extended trading on Tuesday after the online discount brokerage firm unveiled a $1 billion stock buyback program, signaling its coming of age as mature financial services provider.
The company, which targets millennial and younger retail traders, said it would repurchases the shares over a two to three year period, starting from the third quarter of this year.
“As our business and cash flow have continued to grow, we’re excited to announce a $1 billion share repurchase program to return value to shareholders,” said Robinhood CFO Jason Warnick in a statement.
In recent quarters, the company has seen its core trading business reap the benefits of an artificial intelligence (AI)-driven boom in mega-cap tech stocks, rising cryptocurrency prices in the leadup to the approval the spot bitcoin exchange-traded funds (ETFs), and more recently, a social media-led recovery in meme stock darlings GameStop (GME) and AMC Entertainment Holdings (AMC).
The company also continues to diversify its suite of financial products. In late 2022, it started offering retirement accounts. More recently, the brokerage launched its Robinhood Gold credit card and has plans later this year to roll out index options and futures trading.
Buyback Signals Management’s Vote of Confidence
The stock buyback program, coupled with these innovative offerings, position the company as a mature financial services provider, potentially helping the company gain additional investment interest.
Typically, companies buy back their own shares when they believe they are undervalued, indicating management’s confidence in Robinhood’s future prospects.
Although, the brokerage’s stock has gained 60% since the start of the year, Tuesday’s closing price of $20.47 is still roughly 46% lower than Robinhood’s $38 initial public offering (IPO) price in 2021.
Monitor This Ket Chart Level Amid Longer-Term Upside
Looking at the weekly chart, Robinhood shares have continued to track higher since breaking out from a 15-month trading range in mid-February, with volume remaining elevated, indicating active trading within the stock. More recently, the price has moved above a flag, a chart pattern indicating a continuation of the current uptrend.
Amid longer-term upside, investors should keep an eye on the $35 level, an area where the price may encounter selling pressure near the stock’s initial breakdown point in November 2021.
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