Chinese online individual finance marketplace Jiayin Group Inc. (JFIN - Get Rating) stock is soaring because investors believe the company is going to enter the non-fungible token (NFT) business soon. The stock has gained 80.6% over the past five days, and 137.6% over the past three months.

On March 18, the stock was heavily traded on NASDAQ, with trading volume of 137.47 million shares. For comparison, the stock has an average trading volume of 2.07 million shares. With investors pouring in funds into the stock, it hit a nine-month high of $13.60 on that day.

However, no concrete affirmation has been provided by the company to justify investors’ sudden interest in the stock. Apart from the trading frenzy driven by the NFT speculation, many observers believe part of JFIN’s attraction is that it may gain on account of renewed interest in Chinese stocks, thanks to the country’s high economic  recovery potential. With volatility spiking in the U.S. stock markets, many investors are now willing to bet on the fast-growing Chinese market.

Here’s what we think could shape JFIN’s performance in 2021:

Non-fungible Token (NFT) Hype

NFTs have been making a huge splash lately, following the news of the Beeple Art sale for $69.30 million on March 11. Based on blockchain technology, the crypto boom has expanded into the digital art space also. However, unlike cryptocurrencies, NFTs cannot be exchanged because  each token is hallmarked with a unique distribution code, hence the term “non-fungible.” As part of Ethereum blockchain, NFT is a disruptive technology redefining fine art collection.

Several high profile NFTs have been in the news lately. Monthly NFT sales on the OpenSea marketplace increased 1090% to hit $95.20 million in February. According to a Reuters report, which analyzed data from NonFungible.com, total NFT trading volume on Ethereum blockchain  amounted to over $400 million as of March 17, nearly half of which was generated over the past month.

While JFIN could profit significantly from this hype, there is no concrete evidence that the company has any stake or plans to enter the NFT space. The stock began moving rapidly solely on investor speculation created by a buzz in community platform stocktwits.

Weak Financials

JFIN’s revenues have declined 49.9% year-over-year, while its ebitda  fell 65.3% over this period. The company’s EPS has declined 68.9% year-over-year. Furthermore, JFIN’s trailing-12-month ROE and ROTC are negative.

While JFIN’s balance sheet appears to be strong, with a cash balance of $18.93 million, its trailing-12-month book value per share came in at negative $1.52. Also, the company’s long-term debt stands at $3.51 million, which is significantly lower than its  cash balance. Thus, the company is accruing interest on its debt that  it can easily pay off with cash.

Price Target Indicates Potential Upside

JFIN has gained 169.5% year-to-date to close Friday’s trading session at $8.22. The stock is expected to hit $27.30 soon, indicating a potential upside of 232.1%.

POWR Ratings Reflect Uncertainty

JFIN has an overall POWR Rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

JFIN has a C grade for Growth, Value and Quality. In terms of non-GAAP forward p/e, JFIN is currently trading at 14.95x, 13.9% higher than the industry average 13.12x. The company’s declining financials over the past year and negative ROE, along with the relative overvaluation, are  in sync with the grades.

Of the 105 stocks in the D-rated Financial Services (Enterprise) industry, JFIN is currently ranked #31. In addition to the grades I’ve highlighted, you can check out JFIN Ratings for Momentum, Stability and Sentiment here.

There are 16 stocks in the Financial Services (Enterprise) industry with an overall rating of A or B. Click here to view them.

Bottom Line

There is no solid justification  for JFIN’s massive price gains over the past few days. While many analysts attribute the fintech’s growth to non-fungible tokens, several other pointers, such as China’s unrestricted growth potential in 2021 and  a volatile U.S. dollar could contribute to JFIN’s popularity. Thus, we think investors should steer clear of this highly speculative stock, at least until the company announces something that justifies the stock’s rally.

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JFIN shares fell $0.95 (-6.49%) in after-hours trading Monday. Year-to-date, JFIN has gained 380.00%, versus a 5.00% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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