Qifu Technology, Inc. (NASDAQ:QFIN) Soars 31% But It's A Story Of Risk Vs Reward

Qifu Technology, Inc. (NASDAQ:QFIN) shareholders have had their patience rewarded with a 31% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

In spite of the firm bounce in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Qifu Technology as a highly attractive investment with its 5.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Qifu Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Qifu Technology's to be considered reasonable.

Retrospectively, the last year delivered a decent 3.8% gain to the company's bottom line. The latest three year period has also seen a 13% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 14% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 10% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Qifu Technology's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Qifu Technology's P/E?

Even after such a strong price move, Qifu Technology's P/E still trails the rest of the market significantly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Qifu Technology currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - Qifu Technology has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Qifu Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.