FinVolution Group (FINV) is an investment holding company that operates an online consumer finance marketplace in the People's Republic of China. The Shanghai-based company has entered a strategic cooperation with PT Bank Jago, increasing its loan facilitation capabilities and broadening its presence across different market segments in Indonesia. In addition, it has commenced Buy-Now-Pay-Later cooperation with e-commerce partners in Indonesia.
FINV has issued and listed its first asset-backed securities (ABS) on China's Shenzhen Stock Exchange, marking an important milestone in its strategic transition toward better quality borrowers.
It also announced that it had received a "low risk" Environmental, Social, and Governance (ESG) rating from Sustainalytics. Furthermore, the increasing adoption of advanced technologies makes its near-term prospects bright.
Here is what I think could influence FINV’s performance in the upcoming months:
Robust Financials
FINV's revenue increased 40.8% year-over-year to $391.90 million in the third quarter, ended Sept. 30, 2021. Its adjusted operating income grew 7.7% year-over-year to $116.60 million. Also, its adjusted net profit came in at $101.05 million, up 7.8% year-over-year. The company’s non-GAAP net profit per ADS climbed 6.3% year-over-year to $0.34.
Favorable Analyst Estimates
Analysts expect FINV’s revenue to grow 13.1% year-over-year to $1.60 billion. In addition, Wall Street analysts expect the stock to hit $5.60 in the near term, indicating a potential 81.8% upside.
High Profitability
In terms of the trailing-12-month asset turnover ratio, FINV’s 0.58% is 175.8% higher than the 0.21% industry average. Its 51.09% trailing-12-month EBITDA margin is 114.6% higher than the 23.81% industry average. Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 26.14%, 31.41%, and 14.43%, respectively, are significantly higher than the 12.83%, 6.22%, and 1.34% industry averages.
Lower-than-Industry Valuation
In terms of forward EV/EBIT, FINV’s 0.54x is 95.5% lower than the 11.96x industry average. And its 0.16x forward EV/S is 94.5% lower than the 2.82x industry average. And the stock’s forward EV/EBITDA and P/S of 0.57x and 0.62x, respectively, are lower than the industry 10.40x and 3.21x averages.
POWR Ratings Show Promise
FINV has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, FINV has an A grade for Value, in sync with its lower-than-industry valuation ratios.
The stock has a B grade for Quality, in sync with its higher-than-industry profitability ratios.
Beyond what I have stated above, we have also given FINV grades for Growth, Stability, Sentiment, and Momentum. Get all the FINV ratings here.
FINV is ranked #2 of 50 stocks in the China industry.
Note that FINV is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
Bottom Line
FINV is well-positioned to benefit from the strong demand thanks to the increasing preference for digital transactions. Therefore, it looks undervalued at the current price level, and it could be wise to scoop up its shares now.
How Does FinVolution (FINV) Stack Up Against its Peers?
FINV has an overall POWR Rating of B. However, you could also check out these other stocks within the China industry with a B (Buy) rating: NetEase Inc. ADR (NTES), China Automotive Systems, Inc. (CAAS), and Phoenix New Media Ltd. (FENG).
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FINV shares fell $0.06 (-1.95%) in premarket trading Monday. Year-to-date, FINV has declined -37.53%, versus a -11.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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