Zip Co Ltd (ASX: ZIP) shares are recovering on Friday after a savage selloff on Thursday.
In morning trade, the buy now pay later (BNPL) provider's shares are up 5% to $1.94.
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Why are Zip shares rebounding?
Investors have been buying Zip shares today after it announced its intention to undertake an on-market share buy-back of up to $50 million of ordinary shares.
The release notes that the buy-back program is expected to commence on or about 6 March 2026, and will run for a period of up to 12 months.
It also points out that the number of Zip shares purchased under the buy-back will depend on several factors including market conditions, its prevailing share price, and opportunities to utilise capital within the business as they emerge. The company advised that it reserves the right to vary, suspend, or terminate the buy-back program at any time.
Why is it buying back shares?
It seems that the company believes yesterday's 30%+ decline has left its shares trading at a level that makes them undervalued.
And given its strong balance sheet, management sees this as a way to return surplus capital to its shareholders.
Commenting on the decision, Zip's CEO and managing director, Cynthia Scott, said:
Today's announcement reflects Zip's disciplined and balanced approach to capital management. The Buy-Back program is consistent with our capital management framework and objective to maximise shareholder value. It demonstrates confidence in the strength of our balance sheet, and long-term strategy. We remain focused on investing in growth and driving sustainable profitability, while also returning surplus capital to shareholders where appropriate.
Should you invest?
The team at Jefferies believes that this week's share price weakness has created a buying opportunity for investors.
According to a note released this morning, the broker has upgraded its shares to a buy rating (from hold) with a reduced price target of $4.20 (from $5.00).
Based on its current share price, this implies potential upside of 115% for investors over the next 12 months.
Elsewhere, UBS remains positive on the company. In response to its results release, the broker has retained its buy rating on Zip shares with a reduced price target of $4.50 (from $5.20).
This suggests that the company's shares could rise by approximately 130% between now and this time next year.
