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When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Jiayin Group Inc. (NASDAQ:JFIN) as a highly attractive investment with its 4.6x 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.
As an illustration, earnings have deteriorated at Jiayin Group over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
How Does Jiayin Group's P/E Ratio Compare To Its Industry Peers?
We'd like to see if P/E's within Jiayin Group's industry might provide some colour around the company's particularly low P/E ratio. The image below shows that the Consumer Finance industry as a whole also has a P/E ratio significantly lower than the market. So we'd say there is merit in the premise that the company's ratio being shaped by its industry at this time. Ordinarily, the majority of companies' P/E's would be compressed firmly by the general conditions within the Consumer Finance industry. Whilst this can be a heavy component, industry factors are normally secondary to company financials and earnings.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiayin Group's earnings, revenue and cash flow.
How Is Jiayin Group's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as depressed as Jiayin Group's is when the company's growth is on track to lag the market decidedly.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 50%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 11% shows it's a great look while it lasts.
In light of this, it's quite peculiar that Jiayin Group's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
What We Can Learn From Jiayin Group's P/E?
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
Our examination of Jiayin Group revealed its growing earnings over the medium-term aren't contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. It appears many are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.
It is also worth noting that we have found 2 warning signs for Jiayin Group that you need to take into consideration.
If you're unsure about the strength of Jiayin Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
This article by Simply Wall St is general in nature. 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.
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