What happened

Shares of Qutoutiao (NASDAQ:QTT) rose 92.5% in January, according to data from S&P Global Market Intelligence. The stock appears to have benefited from short-squeeze mania initially kicked off by huge gains for GameStop, AMC Entertainment, and other beaten-down companies that had large bearish positions staked against them.

QTT ChartQTT data by YCharts.

Qutoutiao experienced a surge of trading volume as some investors poured into beaten-down stocks with substantial short interest. Even after the recent surge and continued gains in February, the Chinese digital media company's share price trades down roughly 30.5% over the last year.

A woman holding a mobile phone and a credit card.

Image source: Getty Images.

So what

Some investors began seeking out struggling small-cap businesses that had substantial short interest. Investors were able to trigger huge gains for heavily shorted stocks by buying up shares and forcing short-sellers to cover their positions, resulting in these stocks being driven even higher.

An explosion of trading seeking to kick off this dynamic, known as a short squeeze, resulted in big gains for some companies. Qutoutiao appears to have fit the bill and delivered for investors seeking a potentially explosive short-term opportunity.

The company's stock has struggled in the wake of accusations from the national China Central Television (CCTV) agency that it had featured ads containing misleading information. The overall digital advertising market in the country has also been under pressure, creating a more challenging operating backdrop.

Qutoutiao's short interest wasn't anywhere close to GameStop's, but the stock had a substantial percentage of shares sold short and had relatively low volume. In the absence of business-specific news to shape the company's stock price, a surge of investors piling into an otherwise beaten-down company prompted big gains last month.

Now what

Qutoutiao stock has continued to surge early in February's trading. The company's share price is up roughly 21% in the month so far.

QTT ChartQTT data by YCharts.

Qutoutiao has a market capitalization of roughly $1 billion and is valued at approximately 1.3 times this year's expected sales. The company trades at a relatively low sales multiple even after the recent rally for its stock, but its platform has also been losing users and suffering declining per-user engagement levels. Management is making efforts to move the business closer to profitability, and it expects that the current quarter will be its first break-even period since going public, but investors should proceed with the understanding that the stock's outlook is speculative.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.