Qfin Holdings, Inc. (NASDAQ:QFIN) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 22%.
In spite of the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may still consider Qfin Holdings as a highly attractive investment with its 3.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Qfin Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for Qfin Holdings
How Is Qfin Holdings' Growth Trending?
In order to justify its P/E ratio, Qfin Holdings would need to produce anemic growth that's substantially trailing the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 69% last year. The strong recent performance means it was also able to grow EPS by 68% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 7.7% per annum during the coming three years according to the eleven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11% per year, which is noticeably more attractive.
With this information, we can see why Qfin Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Key Takeaway
Having almost fallen off a cliff, Qfin Holdings' share price has pulled its P/E way down as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Qfin Holdings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Qfin Holdings that you should be aware of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
Valuation is complex, but we're here to simplify it.
Discover if Qfin Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.