What happened
Shares of Qudian (QD 0.81%) dipped 13.8% in September, according to data from S&P Global Market Intelligence . The Chinese fintech company's stock saw a pronounced decline following the release of some unfavorable economic data, and it continued the trend lower through the month.
Qudian is focused on providing small-size loans to Chinese citizens, and its share price can see significant swings in relation to macroeconomic shifts in the country. China's National Bureau of Statistics published a report on Sept. 9, showing weaker-than-expected corporate profits and higher-than-expected inflation, and the news kicked off sell-offs for Qudian stock.
Image source: Getty Images.
So what
Qudian stock has lost roughly three-quarters of its value since the market closed on the day of its initial public offering in 2017, but shares have rallied nearly 40% over the last year as the company has continued to post growth for registered users and active borrowers on its platform. The stock's rally saw some pullback last month after China's official statistics agency reported a 2.8% rise for the consumer index exceeded the average Wall Street target for inflation of 2.6%. Moves by China's national bank to reduce reserve requirements for domestic banks and increase loan availability also signaled concerns about weakening economic performance.
Now what
The microloan provider has a market capitalization of roughly $1.9 billion and trades at less than 3.5 times this year's expected earnings. The company expects to increase its net income 76.5% this year to reach 4.5 billion Chinese renminbi (roughly $630 million based on current exchange rates), and its earnings multiple would be even lower if performance winds up in that range.
Qudian stock appears very cheap on a fundamental basis, and management is moving forward with a share repurchase initiative over the next couple years, but there are significant risk factors investors need to consider. Unfavorable currency devaluations have played a role in the stock's poor performance following the IPO in 2017 and could continue to drag shares lower. The threat of new regulatory measures from the Chinese government should also be kept in mind, because the company has received plenty of criticism for charging relatively high interest rates.
Qudian's low multiples and fast growth suggest the stock could be a big winner, but it doesn't appear to be a low-risk investment.
