Yahoo Finance Here's Why I Think LexinFintech Holdings (NASDAQ:LX) Is An Interesting Stock
Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In contrast to all that, I prefer to spend time on companies like LexinFintech Holdings (NASDAQ:LX), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
View our latest analysis for LexinFintech Holdings
LexinFintech Holdings's Improving Profits
Over the last three years, LexinFintech Holdings has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like a wedge-tailed eagle on the wind, LexinFintech Holdings's EPS soared from CN¥9.31 to CN¥13.96, in just one year. That's a impressive gain of 50%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Not all of LexinFintech Holdings's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. On the one hand, LexinFintech Holdings's EBIT margins fell over the last year, but on the other hand, revenue grew. So if EBIT margins can stabilize, this top-line growth should pay off for shareholders.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for LexinFintech Holdings.
Are LexinFintech Holdings Insiders Aligned With All Shareholders?
It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own LexinFintech Holdings shares worth a considerable sum. Indeed, they have a glittering mountain of wealth invested in it, currently valued at CN¥619m. That equates to 30% of the company, making insiders powerful and aligned with other shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.
Should You Add LexinFintech Holdings To Your Watchlist?
Given my belief that share price follows earnings per share you can easily imagine how I feel about LexinFintech Holdings's strong EPS growth. Further, the high level of insider buying impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if LexinFintech Holdings is trading on a high P/E or a low P/E, relative to its industry.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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