QFIN HOLDINGS INC-ADR (NASDAQ:QFIN): A Peter Lynch-Style GARP Investment

In the world of long-term investing, few strategies have shown as much practical success as the approach used by Peter Lynch during his time at Fidelity's Magellan Fund. His method focuses on finding companies with lasting growth paths, fair prices, and good financial condition, what many now call the Growth at Reasonable Price (GARP) approach. This strategy stays away from the extremes of pure growth investing by focusing on basic strength and price discipline, looking for companies that can provide steady results over long times instead of following speculative trends. The screening rules from Lynch's thinking help investors find businesses with confirmed profitability, acceptable debt, and growth speeds that can be continued over the long term.

Company Overview

QFIN Holdings Inc (NASDAQ:QFIN) works as a credit technology service provider located in Shanghai, China. The company helps the consumer finance area through two main service types: credit-driven services that connect borrowers with financial institutions, and platform services that include loan help, smart marketing, and risk management answers. Started in 2018, QFIN has made a place for itself in the financial technology field by using technology to make credit services easier while keeping a capital-light model for some operations. The company's focus on credit technology puts it where financial services and technology meet, serving a developing market in China's financial area.

Growth Metrics and Sustainability

The Peter Lynch strategy focuses on lasting growth speeds that avoid the extremes of either no growth or unsupportable enlargement. Companies must show steady earnings growth while keeping the ability to continue this path without stretching their operations too thin. For Lynch, growth speeds between 15% and 30% represent the ideal area where companies are growing significantly but not at a speed that could cause operational stress or future letdown.

• EPS growth over past 5 years: 19.96%
• Expected future EPS growth: 16.28%
• Revenue growth over past years: 13.24% average
• Expected revenue growth: 8.48%

QFIN's past earnings per share growth of nearly 20% each year fits well within Lynch's chosen range, pointing to solid but maintainable enlargement. The company has kept this growth while moving to somewhat more moderate future expectations, suggesting a development that matches Lynch's liking for businesses that can keep going without failing. The steadiness between past performance and future estimates gives trust that management knows its growth ability and is not promising impossible enlargement.

Valuation Assessment

Lynch's method puts notable focus on price measures that consider both current prices and growth possibilities. The PEG ratio, which compares the price-to-earnings ratio to earnings growth, works as a key part of this price structure. A PEG ratio under 1.0 suggests that investors are paying less for each unit of growth, showing possible low pricing relative to the company's enlargement path.

• PEG ratio: 0.16
• P/E ratio: 3.11
• Forward P/E ratio: 2.78
• Enterprise Value/EBITDA: Among cheapest 11% of industry

QFIN's very low PEG ratio of 0.16 falls significantly below Lynch's limit of 1.0, showing major low pricing relative to its growth speed. The company's standard P/E and forward P/E ratios also sit well under industry and S&P 500 averages, suggesting that the market may be underpricing QFIN's earnings ability. This mix of solid growth and low price exactly matches what Lynch called the perfect investment situation, where market negative views or lack of attention create a chance for long-term investors.

Financial Health and Profitability

The Lynch method requires good financial health to make sure companies can handle economic ups and downs and continue paying for their growth from within. Important measures include acceptable debt levels, strong current ratios for short-term steadiness, and outstanding returns on equity that show efficient use of investor money. These things together point to a business that can fund its operations without too much risk or weakening of ownership.

• Debt-to-Equity ratio: 0.26
• Current Ratio: 3.48
• Return on Equity: 30.15%
• Return on Invested Capital: 14.53%

QFIN's financial health measures match strongly with Lynch's preferences, especially the debt-to-equity ratio of 0.26, which falls under Lynch's tighter limit of 0.25 by only a small amount. The current ratio of 3.48 points to large short-term financial steadiness, far exceeding the lowest need of 1.0. Most notably, the return on equity of over 30% shows outstanding efficiency in creating profits from shareholder investments, passing Lynch's 15% limit by a big margin.

Fundamental Analysis Summary

According to Chartmill's full fundamental analysis, QFIN gets an overall score of 8 out of 10, placing it strongly within the consumer finance industry. The company does well in both profitability and financial health while keeping attractive prices. Important strong points include industry-leading profit margins of 38.67%, excellent solvency measures with a debt-to-free-cash-flow ratio of 0.58, and price measures that put it among the lowest cost in its field. The analysis states that QFIN's mix of quality and price makes it especially interesting for investors looking for both protective features and growth possibility.

Investment Considerations

While the number-based measures match strongly with the Peter Lynch structure, investors should think about several non-number factors. The company works in China's financial technology area, which presents both growth chances and rule-related points to consider. QFIN's business model mixes technology platform services with credit help, giving variety within the financial system. The company's institutional ownership levels and insider trading action, extra things Lynch thought were important, would need more study to finish the investment idea.

For investors wanting to look at other companies that fit the Peter Lynch investment rules, more screening results are available through our Peter Lynch Strategy Stock Screener. This tool lets you filter for companies meeting the specific growth, price, and financial health measures talked about in this study.

Disclaimer: This article presents factual information and analysis for educational purposes only and should not be seen as investment advice, a suggestion to buy or sell any security, or a support of any particular investment plan. All investments carry risk, including possible loss of original money. Readers should do their own research and talk with a qualified financial advisor before making any investment choices. Past performance does not guarantee future results.