Is Jiayin Stock A Buy?

Jiayin Group Inc. [NASDAQ: JFIN] is a leading fintech platform in China focusing on facilitating effective, transparent, safe and fast connections between investors and borrowers, whose needs are underserved by traditional financial institutions. 

Its loan facilitation services mainly tie qualified individual borrowing needs with the investing demands. It employs advanced big data analytics and sophisticated algorithms to accurately assess the risk profiles of potential borrowers.

For investors the question is whether it’s worth parting with capital to buy JFIN shares?

Is Jiayin Stock a Buy?

Jiayin Group’s stock was trading at $2.54 on March 11th, 2020 when Coronavirus was declared a pandemic by the World Health Organization. Since then, JFIN shares have soared more than 30% despite downbeat market sentiments and uncertainty surrounding the industry in which the Chinese fintech company operates.

Jiayin Group Inc. [NASDAQ: JFIN] announced its quarterly earnings data on Thursday, June 11, 2020 and, to be frank, it was nothing much to write home about. 

Average investment amount per individual investor was $12,897, representing an increase of 37.6% from the same period in 2019. Average borrowing amount per borrower was $ 1,103, representing an increase of 8.1% from the same period in 2019.

The company reported $0.75 earnings per share (EPS) for the quarter, missing the consensus estimate of $1.00 by $0.25.

Revenue came in at $44.28 million, down year-over-year by 57.1% and missing analysts’ expectations of $50.80 by $5.13 million.

It had a net margin of 17.39% and a negative return on equity of 39.52%.

The company, though, was upbeat about its performance with Mr. Yan Dinggui, the Founder, Director and Chief Executive Officer, claiming that improved risk management should help the company’s financials going forward.

With the economy in turmoil because of the COVID-19 pandemic, the company had been laying special emphasis on cost control, which significantly improved its operational efficiency and helped the company achieve operational profitability.

Risks of Investing in Jiayin Group

Investors are bound to be dismayed by Jiayin Group’s last year’s earnings, which slid around 50%. The earnings per share (EPS), fortunately, has not shared the same fate, partially due to the earlier period of growth.

All these factors are bound to make investors nervous as they demonstrate a fair bit of inconsistency when it comes to the earning potential of the company.

Moreover, the fintech company’s earnings growth, or the lack of it, is not the only thing that has been behaving erratically recently.  Even the company stocks seem to be swinging wildly with shares of the Chinese company soaring to a mammoth 900% just a couple of months back, before some sanity was restored and the stock pulled back; by the end of the day it was “only” up by 96%.

A few experts attributed this massive climb to the company’s earnings report which was due to be released after the market closed.

However, this appeared unlikely as the results seemed to have taken a hit by the raging pandemic in China. Both, earning and EPS, came below analysts’ expectations as well as lower than what it was in the same quarter a year ago.

Why Did JFIN Shares Rise When Earnings Were Bad?

A possible explanation for this anomaly could be attributed to the trading app Robinhood. Its users have been actively seeking penny stocks and setting off a frenzy in FOMO ING(Fear of Missing Out) investors. A fear of missing out on profit occurs when an investor notices a sharp rise or slump in a stock’s price.

Overly high and unrealistic expectations coupled with impatience and overconfidence often clouds an investor’s rational thinking abilities, compelling the person to enter trade with little thought.

A good example could be of investors buying Bitcoin at a very high price – even when they were unsure what cryptocurrency was. Another example could be that of car rental company Hertz whose stock was sent gliding over 900% by fresh investors just after it filed for bankruptcy.

It is possible someone pulled the trigger on JFIN, and the resultant movement was noted by FOMOING investors who then went into a no-holds barred buying spree, sending the stock soaring to new altitudes.

Investors, no doubt, have been showing disproportionate amount of interest in Jiayin shares. However, Roth Capital analyst Craig Irwin does not seem to share the enthusiasm of investors in a dejected post-COVID climate, warning that “positive catalysts are unlikely to emerge in the next few months.”

Jiayin Group has received a consensus rating of Hold along with consensus price target of $2.40. This implies a forecasted downside of over 30% from its current price.

Analysts have become substantially more conservative when it comes to their forecasts for the organization. The consensus view for Jiayin group’s revenues for 2020 is CN¥1.7b, a painful 36% decline in sales compared to the last year.

Who Is Nipping At Jiayin’s Heels?

Companies in the industry of “non-depository credit institutions” are considered alternatives and competitors to Jiayin Group, including Blucora, Patai Loan, China Rapid Finance, Wins Finance and Oportun Financial, among others.

Jiayin can be assessed with respect to its competitors based on parameters such analysts’ recommendations, revenue, profitability, risk and valuation, to name a few. Analysts have become more pessimistic regarding the Jiayin Group, given the sizeable cut to revenue estimates in their update.

The consensus price target fell 80% to US$2.40, with Jiayin expected to perform below the industry average in which it operates.

In a distinct threat to the company’s fortunes, forecasters paint a grim picture of 36% revenue decline, compared to the historical growth of 30% over the last three years. In sharp contrast, companies in the same industry are, in aggregate, expected to see their revenue go up by around 10% next year.

It’s pretty clear that Jiayin Group’s revenues are expected to come in markedly slower than the wider market. It is often seen that downbeat analysts’ sentiments can set off a chain reaction, especially if an industry is in decline. It should, therefore, come as no surprise if investors became a lot more favorable towards Jiayin Group’s competitors.

Is Jiayin Group Stock A Buy: The Bottom Line

The ongoing pandemic has had a material and extended adverse impact on the Chinese and global economy, and Jiayin was no exception to it. Revenues came in at CN¥314m, and fell a dismal 10% short of estimates. However, the company achieved a few significant milestones that positioned it for strong growth in the years ahead.

During the reported quarter, the company successfully completed the transition from being facilitated by individual investors to being fully funded through institutional investors, thus demonstrating its solid execution capabilities.

An important thing going in Jiyain’s favor is that China’s consumer markets are in recovery mode and consumer demands have started to rebound.

Following the recent earnings report, analysts estimate revenues of CN¥1.67b in 2020, a downside of close to 8 % as compared to the last 12 months. Despite the prediction of sales slowdown, the stock rose propitiously, indicating that the latest results have been in line with expectations and confirmed that the business is performing as expected. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.