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Why Shares of Qudian Popped Today

Timothy Green, The Motley Fool

What happened

Shares of Chinese consumer credit products provider Qudian (NYSE: QD) jumped on Friday after the company announced a share repurchase agreement with a major shareholder. The stock was up about 12.5% at 11:15 a.m. EDT.

So what

Qudian has agreed to purchase approximately 18.2 million Class A ordinary shares from Kunlun Group Limited. This represents all of Kunlun's Class A shares in the company. At the end of 2018, the weighted diluted average number of Class A and Class B ordinary shares stood at about 304 million.

A rising stock chart.

Image source: Getty Images.

Qudian has also been buying back its American depositary shares. The company adopted a $300 million share repurchase program in 2017, and it had used $272.8 million of that amount as of March 18 of this year. It announced an additional $300 million buyback program in December of last year.

Qudian believes that there's a "disconnection between strong fundamentals and low stock price," a view that prompted the ADS buyback programs.

Now what

Shares of Qudian have tumbled more than 80% from their all-time high, despite strong revenue and earnings growth. The company is trying to take advantage of a beaten-down stock price with its two ADS buyback programs and its Class A repurchase agreement.

The market approves of the buyback plan, but it's still valuing the company at a single-digit multiple of earnings, even after Friday's surge.

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Timothy Green 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.