Qudian Headed for Wall Street Exit Door? Not So Fast, Perhaps

Former fintech highflyer’s average share price falls below $1 for 30 days, even as analyst sentiment shows sudden positive shift

Key takeaways:

• Qudian’s stock has closed at an average price of less than $1 over the last 30 trading days, putting it out of compliance with New York Stock Exchange listing rules
• Analysts have suddenly become more positive on the company, with six rating it a ‘buy’ or ‘strong buy’ in February after it received mostly ‘hold’ ratings in previous two months

By Doug Young

We’ll end this first trading week of the Year of the Tiger in similar fashion to how it began, with news of another U.S.-listed Chinese company facing delisting after its stock has consistently traded below the important $1 threshold. Earlier in the week we discussed the delisting threat for pet community operator Boqii (BQ.US). Now it’s former fintech pioneer Qudian Inc. (QD.US) that has just issued a similar announcement saying it faces potential delisting for the same reason.

What’s interesting in this case is that the analyst community has suddenly become quite bullish on Qudian, perhaps indicating they think the company has finally turned a corner and could be due for a rebound that many of its peers have already started experiencing.

In fact, it’s quite revealing that Qudian is getting any analyst coverage at all, since companies of its size –$253 million at Thursday’s market close – are rarely covered at all. Only one such analyst asked a question on the company’s latest earnings call back in December, indicating that interest in Qudian’s sputtering story was low. But that seems to be changing.

The company was rated as a “hold” or “underperform” by four analysts polled by Yahoo Finance in December and January – not exactly exciting stuff for investors. But something seems to have shifted this month, with the number of analysts now following the company suddenly nearly doubling to seven. What’s more, three of those rate Qudian a “strong buy” and another three rate it a “buy,” while just one has a “hold” rating.

Of course, it’s possible there’s a bug in Yahoo Finance’s data, since there’s no apparent reason for the sudden shift in sentiment. Still, it’s possible many might believe the stock is too beaten down at current levels and the company could be on the cusp of returning to revenue growth soon, ending several years of declines dating back to 2019 when China’s financial regulator turned up its campaign to rein in the country’s fintechs.

The ongoing crackdown saw most of China’s major fintechs divide into two camps, one group continuing as direct lenders while the other switched to the less capital-intensive and more lightly regulated role of middlemen loan facilitators. Qudian, which started out as a provider of small loans to college students, chose to continue as a direct lender by providing young consumers with small loans to buy items like smartphones and laptops.

But the going hasn’t been easy, and Qudian’s latest financial report shows its revenue continued to contract to the tune of 60% in the three months through September, falling to 347 million yuan ($55 million) from a year earlier. It also posted a net loss of 94.2 million yuan for the quarter, reversing a 592 million yuan profit a year earlier and also reversing a profitable second quarter.

That report in mid-December sparked a selloff that sent Qudian’s shares below the $1 mark. They’ve traded as low as low as $0.81 since then, and have also finished a few days above the $1 mark. But the bottom line, according to the latest announcement, is that the stock’s average closing price has been below $1 for the last 30 trading days, putting it out of compliance with New York Stock Exchange listing rules.

Delisting threat

In the boilerplate announcement, Qudian said it has six months to return to compliance by bringing its shares above the $1 level. As if to help the company reach that goal, investors bid up the stock by 2% to finish at exactly $1 in Thursday trade. The gain continued a modest rally that has seen the shares rise more than 17% from $0.85 on Jan. 27 to their current level.

Still, the company is a far cry from the $6 billion it was worth when it raised $900 million by selling its shares for $24 apiece in its October 2017 IPO. It’s been mostly downhill from there as China’s financial regulator has gradually tightened the screws on a formerly freewheeling private financial sector with very little experience at what it was doing, including risk management.

The big majority of China’s fintechs folded during the cleanup. But most of the ones still in business have returned to a growth track, often in the role of loan facilitators rather than actual lenders.

That return to growth shows up in their share performance, with nearly all those stocks outperforming Qudian’s. Two good examples are FinVolution (FINV.US) and 360 DigiTech (QFIN.US), whose stocks are down 30% and 23% over the last 52 weeks – far less than the 73% decline for Qudian over the same period.

The Qudian selloff has depressed the company’s valuation metrics, giving it a price-to-sales (P/S) ratio of just 0.5 – below the 0.83 for FinVolution and 1.42 for 360 DigiTech. Qudian’s price-to-book (P/B) ratio looks even worse at just 0.12, versus 0.71 for FinVolution and 1.3 for 360 DigiTech. The low P/B is probably at least partly due to Qudian’s cash holdings of $263 million at the end of the third quarter, which alone is slightly bigger than its most recent market value.

The limited number of analysts who have given forecasts for Qudian see things improving for the company in the Year of the Tiger, though they believe its revenue will continue to contract. Two analysts polled by Yahoo Finance believe the company’s revenue will total $224 million this year, representing a roughly 30% drop from 2021. Its profit this year is expected to fall by a milder 8.5%. Both figures would represent an improvement over the expected 45% and 11% declines in revenue and profit, respectively, for 2021 compared with 2020.

At the end of the day, the company is still likely to shrink this year, albeit at a slower rate than in 2021. But that may still be good enough for stock bargain hunters, perhaps explaining why analyst sentiment has suddenly shifted so dramatically. Those same analysts have set an average price target of $1.54, which is obviously well above the latest stock price. Such aggressive targets aren’t all that uncommon in the world of stock coverage. But perhaps in this case they’re more justified if analysts truly believe that Qudian will soon rejoin its peers in returning to growth.

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