Jiayin Group Inc. (NASDAQ:JFIN) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 145% in the last twelve months.
After such a large drop in price, Jiayin Group may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 3.6x, since almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 34x are not unusual. 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.
The recent earnings growth at Jiayin Group would have to be considered satisfactory if not spectacular. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform 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.
View our latest analysis for Jiayin Group
Does Growth Match The Low P/E?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Jiayin Group's to be considered reasonable.
Retrospectively, the last year delivered a decent 2.9% gain to the company's bottom line. Pleasingly, EPS has also lifted 156% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Comparing that to the market, which is only predicted to deliver 14% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
With this information, we find it odd that Jiayin Group is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Bottom Line On Jiayin Group's P/E
Shares in Jiayin Group have plummeted and its P/E is now low enough to touch the ground. 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.
We've established that Jiayin Group currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Jiayin Group that you should be aware of.
If these risks are making you reconsider your opinion on Jiayin Group, 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.