Taiwan's biggest smartphone maker, jumped the most in more than 20 months in Taipei trading after announcing a share buyback.

HTC surged by the daily limit of 7 percent to NT$153, its biggest gain since Nov. 14, 2011. The benchmark Taiex index added 0.5 percent. The stock has slumped 49 percent this year on sliding sales of its handsets, including the new flagship HTC

One smartphone. HTC plans to buy back 15 million shares between NT$140 and NT$290 apiece from Aug. 5 to Oct. 4 , the Taoyuan, Taiwan-based company said in a statement to the Taiwan stock exchange. The buyback accounts for 1.8 percent of the company's outstanding shares and is worth as much as NT$4.35 billion ($145 million), according to data compiled by Bloomberg.

The buyback “shows the company's determination to stabilize the stock price and boosts investors' confidence,” Yuanta Investment Consulting said in a report today.

The stock fell to its lowest in almost eight years last week after the company said sales may drop for an eighth quarter in the three months ending Sept. 30 amid intensifying competition. Net income dropped 83 percent from a year earlier in the June quarter on revenue that fell 22 percent, the company said in a statement on July 5

Eoin Treacy's view HTC's loss of a patent suit with Apple initiated a steep decline in the share price which has accelerated of late. The company offers an excellent example of how a low P/E can turn into a high P/E overnight because earnings collapse rather than prices rising. HTC's historic P/E is 7.59 while its Estimated P/E is 105. The share has also cut its once attractive dividend, falling out of the S&P Pan Asia Dividend Aristocrats in the process, and now yields 1.33%.

In the competitive world of mobile handsets, the company has failed to keep pace with Samsung and Apple and will need to do more than buy back shares to initiate a recovery. However following today's close, prices are more than 40% overextended relative to the 200-day MA. The announcement of a buyback should help to spur short covering suggesting that a medium-term low has been reached and a mean reversion rally is more likely than not.