QFIN HOLDINGS INC-ADR (NASDAQ:QFIN): A Prime Example of the "Decent Value" Investing Strategy

For investors looking for undervalued opportunities, the "Decent Value" screening approach offers a systematic method to find stocks trading below their intrinsic worth while keeping solid fundamental health. This strategy looks for companies with strong valuation ratings, typically above 7 on a 10-point scale, while making sure they also show good scores in profitability, financial health, and growth. The thinking behind this approach matches value investing principles, where the goal is to buy quality businesses at discounted prices, giving both a margin of safety and room for price increase as the market sees their true value.

QFIN HOLDINGS INC-ADR (NASDAQ:QFIN) presents a strong case study of this strategy at work. The Chinese consumer finance company, based in Shanghai, works through credit technology services that link borrowers with financial institutions. Its business model includes both credit-driven services and capital-light platform services, placing it in the growing fintech sector in China.

Valuation Metrics

The company's valuation metrics are particularly attractive, getting a ChartMill Valuation Rating of 9 out of 10. This high score comes from several key factors:

• Price-to-Earnings ratio of 3.61, much lower than the industry average of 15.48 and the S&P 500 average of 27.02
• Forward P/E ratio of 3.19, pointing to continued undervaluation compared to future earnings expectations
• Enterprise Value to EBITDA and Price-to-Free Cash Flow ratios both compare well against industry peers
• The low PEG ratio, which includes growth expectations, gives more proof of the stock's attractive valuation

For value investors, these metrics are important because they show the stock may be trading below its intrinsic value. The large discount to industry and market averages gives that essential margin of safety, a key part of value investing that protects against wrong valuation assumptions.

Financial Health Assessment

QFIN shows solid financial health with a ChartMill Health Rating of 8 out of 10. The company's balance sheet strength is clear in several areas:

• Current Ratio of 3.48 shows strong short-term liquidity, better than 81.82% of industry peers
• Quick Ratio of 3.48 shows good ability to meet immediate obligations without needing inventory
• Debt-to-Equity ratio of 0.26 shows careful leverage compared to 83.64% of competitors
• Debt-to-Free Cash Flow ratio of 0.58 suggests the company could pay off all debt in under seven months of cash generation

This financial stability is especially important for value investors, as it lowers bankruptcy risk and gives the company flexibility to handle economic downturns or invest in growth opportunities without needing too much external financing.

Profitability Analysis

The company's operational efficiency is shown by its ChartMill Profitability Rating of 9 out of 10. Key profitability indicators include:

• Return on Equity of 30.15%, in the top 9% of the consumer finance industry
• Return on Assets of 12.14% and Return on Invested Capital of 14.53%, both much higher than industry averages
• Impressive profit margin of 38.67% and operating margin of 44.19%, exceeding 94.55% of peers
• Steady profitability over the past five years with positive operating cash flow each year

For value investors, lasting high profitability confirms the business model's quality and suggests the company has lasting competitive advantages. The growing margins over recent years point to better operational efficiency, which could lead to future earnings growth.

Growth Trajectory

With a ChartMill Growth Rating of 6 out of 10, QFIN shows good growth momentum:

• Earnings Per Share grew 71.02% over the past year with a 5-year annualized growth rate of 19.96%
• Revenue increased 9.77% in the past year with a 5-year annualized growth rate of 13.24%
• Analysts expect future EPS growth of 16.80% each year and revenue growth of 8.48%

While the growth rating is average compared to the high scores in other categories, it shows the company is not standing still. For value investors, this level of growth combined with large valuation discounts makes an attractive risk-reward profile, as the market may be underestimating the company's future earnings potential.

The detailed fundamental analysis report shows a company trading at low valuation multiples while keeping excellent profitability and financial health. This combination fits well with value investing principles, where the goal is to find quality businesses that the market has priced incorrectly. The large discount to intrinsic value, together with strong operational metrics, suggests QFIN may be the kind of opportunity value investors look for, a fundamentally sound company available at a price that gives a large margin of safety.

For investors wanting to find similar opportunities, more screening results are available through our Decent Value Stocks screening tool, which systematically finds companies meeting these criteria.

Disclaimer: This analysis is based on fundamental data and screening methods for educational purposes only. It does not make up investment advice, and investors should do their own research and think about their individual financial circumstances before making investment decisions. Past performance does not guarantee future results, and all investments carry risk, including possible loss of principal.