Collegium Pharmaceutical Inc. (COLL) is a pharmaceutical company that specializes in developing and commercializing pain management products, focusing on managing severe and acute pain with an approach towards less addictive opioids.
Demonstrating confidence in the company's undervalued share price, the board initiated a new share repurchase program November 2021.
This is a significant move for a young, smallcap biotech, as biotechs usually need to devote more resources to either sales efforts or R&D.
LevelFields users were alerted to the news within the Stock Buyback scenario. While there was a small price increase on the news of the event, the big move happened for longer term holders who put two and two together and saw a company rapidly increasing revenues and doing stock buybacks to create greater shareholder value.
Using LevelFields' AI search agents, stock and options traders can set precise filters for the types of companies and catalyzing events they are looking for. To find a stock like COLL, users need only filter by the financials of the company and the type of event - stock repurchase announcements.
Two years after their first buyback announcement, COLL stock was up 65% percent, representing a return of over 6X the return of the S&P 500 index.
A company authorizes a stock buyback or repurchase agreement as a way of increasing the value of each share of stock. The company is removing shares of the company from the marketing, making remaining shares more valuable per share.
There are buybacks and there are buyback authorizations. A buyback is the transaction. A buyback authorization occurs when the company makes the decision to allocate capital towards future transactions/buybacks.
When the buyback is authorized, the price will typically move by at least the value of the buyback.
For example, if the company authorizes a $5 billion dollar buyback on a market cap of $50 billion, the share price will typically adjust to the anticipated buyback by +10%.
The market does not always price things efficiently right away. Sometimes the share price will rise quickly, other times it will rise more slowly over the day.
Buyback authorizations are announced outside of regular trading hours, because they are material to the share price. The company waits until the share price drops to a low point before repurchasing the stock.
When a company announces a stock buyback program, it means they intend to buy back shares of stock it had previously sold. The announcement often excites investors, causing them to buy the stock on the premise that the company will increase the value of each share by decreasing the number of shares available. This makes each share more valuable.
There's often a large price increase on the day of an announcement that options traders and stock traders might use to make money. Those holding the stock prior to the stock buyback announcement might see this increase in price as an opportunity to sell the stock.
Longer-term investors and options traders can see buybacks as management confidence in the business and invest in the company knowing the buybacks will drive greater returns and that the management's outlook for future growth is favorable enough to warrant using cash to buy back stock instead of investing in operational costs. Companies that do not have extra cash don't do stock buybacks.
The LevelFields platform uses AI to find stock and options trades and investments. One of the ways it does so is by identifying events that are proven to move share prices short and long term - like stock buybacks. Users of the platform need only click a button to subscribe to all the stock buybacks and get alerts each time it happens without having to look at news feeds.
The LevelFields platform then displays how these events typically affect share price changes, making it easy to assess the desired entry and exit points for the investment.
