Stock Market

The $150 Million Reason Asana (ASAN) Stock Is Surging Today

This software giant is buying back shares heavily, leading to strong buying activity today

Source: Piotr Swat / Shutterstock.com

Share buyback announcements are becoming commonplace, as many companies that have earned excess profits are looking for a place to invest their windfalls. For software company Asana (NYSE:ASAN), today’s announcement that the company will be buying back $150 million of its own stock has sent its share price surging. At the time of writing, ASAN stock is up about 15% on this news.

The company’s board of directors has approved this stock repurchase program, which will run through the end of the month. Accordingly, investors appear to be pricing in some strong near-term buying activity, which will run up the company’s share price.

Now, the question is whether this catalyst has been more than priced in or if there could be more upside ahead. Let’s dive more into this announcement and what it may mean for shareholders.

ASAN Stock Surges on Share Buyback Announcement

Some buyback announcements hit harder than others for various reasons. The sizing of such buybacks is important to consider. Given Asana’s current value at less than $3 billion (after today’s rise), this $150 million buyback will be significant, amounting to approximately 3% of the company’s overall float.

There’s also the signal this move provides to the market. The company stated that it believes its shares are undervalued in its statement to investors. And with more than $500 million of cash and equivalents on its balance sheet, this move could suggest there’s plenty of room for future buybacks where this came from.

Buybacks can be a good thing for a given stock if reinvesting in the core business won’t impact cash flow growth materially. Share buybacks are often viewed as tax-free dividends, something long-term investors such as Warren Buffett have espoused as a good thing.

So long as Asana can maintain the right level of investment in its core business and continue to innovate to retain its moat in its core workflow management business, this announcement should be viewed positively. That said, given the breadth of this move on this news, this will be a stock to watch in the coming days.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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