Why Qudian Inc. Stock Bounced 19% Higher This Morning

What happened

Qudian Inc. (NYSE: QD) finally hit bottom last week -- or so investors can hope, as they gaze happily upon the near 19% stock price bounce (still up 14.7% as of 11:15 a.m. EST) that the Chinese online small consumer credit provider is enjoying this morning.

So what

Why is Qudian stock bouncing? There are two theories. The first is that, after falling nearly 50% over the last two weeks, it has finally hit bottom. "Shorts" are closing out their positions and buying the stock back to cash out their gains before Qudian shoots even higher. This could happen if other shorts get squeezed by the price spike, and are forced to close their own short positions, propelling the stock even higher.

The second theory is more ominous: Qudian stock has not hit bottom, and after shorter-term shorts have taken their profits, the longer-term naysayers will return and resume selling Qudian stock short. In short, this is a dead cat bounce in Qudian's stock price, and one that won't change the underlying fact that things are not going well for the company.

Now what

The truth is that no one knows for sure which of the above theories is correct. But here's what we do know.

Earlier this month, Qudian reported 308% year-over-year sales growth and 322% year-over-year earnings growth. Chinese regulators have recently begun tightening rules for online lending in a manner that may crimp Qudian's growth rate in the future. Plus, partner Ant Financial has instructed Qudian to lower the interest rates it charges on loans originated via the Alipay consumer interface, which could further restrict revenue and profit growth.

Nonetheless, Qudian management insists that it "supports this policy change as it promotes a healthy environment for credit services offered in China." Moreover, Qudian management says loans originated via its own mobile applications can still charge rates up to 36% annual interest, and Qudian's mobile applications "now rank among the top downloaded application under the finance category for major app stores in China."

Given these facts, I'd say there's a chance Qudian's cat still has a few lives left in it.

10 stocks we like better than Qudian Inc. American Depositary Shares, each representing one Class A Ordinary ShareWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Qudian Inc. American Depositary Shares, each representing one Class A Ordinary Share wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 6, 2017

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.