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Little Excitement Around FinVolution Group's (NYSE:FINV) Earnings As Shares Take 25% Pounding
Unfortunately for some shareholders, the FinVolution Group (NYSE:FINV) share price has dived 25% in the last thirty days, prolonging recent pain. Longer-term shareholders would now have taken a real hit with the stock declining 6.2% in the last year.
Since its price has dipped substantially, FinVolution Group's price-to-earnings (or "P/E") ratio of 3.6x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E's above 34x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Recent times have been advantageous for FinVolution Group as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.
Check out our latest analysis for FinVolution Group
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, FinVolution Group would need to produce anemic growth that's substantially trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 35%. The latest three year period has also seen an excellent 31% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 8.5% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 11% per annum, which is noticeably more attractive.
In light of this, it's understandable that FinVolution Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From FinVolution Group's P/E?
FinVolution Group's P/E looks about as weak as its stock price lately. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of FinVolution Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for FinVolution Group that you should be aware of.
Of course, you might also be able to find a better stock than FinVolution Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.