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.
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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.
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.
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