We recently compiled a list of the 10 Best Value Penny Stocks to Invest in Now. In this article, we are going to take a look at where Finvolution Group (NYSE:FINV) stands against the other value penny stocks.
The US market has been resilient over the past years despite higher interest rates, however, recent reports showed a sharp decline in the growth of the U.S. job market. According to reports from the Labor Department, the economy added just 114,000 jobs in July compared to 179,000 in June. This marks a sharp drop in employment generation from 482,000 in January 2023, raising the unemployment rate to 4.3% in July 2024, the highest level in nearly 3 years. The significant slowdown in hiring can potentially make the economy vulnerable to recession and therefore leads to an ease in monetary policy guaranteeing an interest rate cut in September. Economists are calling for a 50 basis point reduction in borrowing costs.
With the current uncertainty in the market and delay in rate cuts, investors are worried about a possible recession. The question is should investors pick penny stocks to diversify their portfolios? Penny stocks, though cheap, are without any doubt risky investments with a high rate of volatility and are even more sensitive to monetary policy changes. A higher interest rate negatively affects stocks’ earnings performance because these stocks are mostly running on debt and, therefore, can benefit from a possible rate cut in September 2024.
Moreover, these stocks are prone to speculative trading and scams, and therefore, are suitable for investors that can do diligent research and have a high tolerance for risk. However, not all stocks are the same and investors may yet benefit from long-term investments in high quality penny stocks with strong fundamentals. Value investing is an investment strategy focused on finding stocks that are being traded for less than their intrinsic or true value. In other words, value stocks are undervalued by the market and can be rewarding long-term investments once the market realizes their true value.
Investing in small-cap penny stocks is no doubt risky owing to their high volatility and low liquidity, however, using the value investing strategy one can generate long-term profits from investing in these stocks.
Investing in Small-cap Stocks in 2024
Most penny stocks have small market caps. Large-cap stocks generally dominate the market outperforming small-caps, and last year was no different as the large-cap stocks beat small-cap stocks by an average of 9.6 percentage points. Moreover, in 9 out of the last 10 years, large caps outperformed penny stocks, however, small caps showed competitiveness back in the days of the internet boom, when the dot-com bubble was breaking in the period 1999 to 2004.
There is hope for a small-cap rebound in 2024, and that is because the historical trends tell us that after nearly a decade of underperformance, the tables turn and small-caps, which include many penny stocks, can rebound. Moreover, in the fourth quarter of 2023, penny stocks showed a recovery in growth and this could set the stage for a renaissance for the small-caps in 2024.
In a recent interview with CNBC, Fundstrat’s head of research, Tom Lee expressed optimism about the potential rise of small-cap stocks in 2024 owing to the softening of inflation in June. Tom Lee further discussed the performance of the small-cap stocks that rose 30% in 8 weeks from October to December 2023. Lee believes that the current rally can be even more substantial compared to last year as it’s driven by factors like larger institutional short positions, small-cap even more oversold, and valuations like median P/E at 10 times 2025 earnings. In addition, June’s Consumer Price Index has declined to its lowest level in the last 3 years, this can lead to the feds cutting the interest rate expected in September 2024. According to the estimates of Tom Lee, in case the interest rate is cut down, the small caps can gain as much as 50% in 2024.
Secondly, presidential elections have been historically in favor of these stocks, research shows that seven out of eleven election times, the small-cap outperformed by an average of 2.68 percentage points.
The recent consumer price index data released in June 2024, suggests a deceleration in inflation, the prices are getting stabilized particularly in core consumer segments such as shelter and food. According to the latest Inflation report, the Personal Consumption Expenditure index (PCE) rose by 0.1% from April matching the Wall Street expectations. Furthermore, the report shows a growth of 0.5% in personal income in the U.S. which is up by $114.1 billion. This potential relief to consumers can stabilize the US market and might influence the Federal Reserve’s Monetary policy decisions in favor of small-cap by cutting interest rates as expected by the end of 2024.
Methodology:
To compile this list of the 10 best-value penny stocks to invest in, we used a screener to narrow down penny stocks trading under $5 on the basis of relatively lower forward p/e ratios compared to their respective industry averages. We further screened these stocks by using metrics like institutional ownership of greater than 40% and ensured that the companies had positive upsides based on analysts’ consensus.
After shortlisting the stocks based on the above-mentioned value metrics, we ranked those stocks based on hedge fund sentiment towards each stock. To rank the penny stocks, we assessed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An individual using a laptop to access the fintech platform to manage their finances.
Finvolution Group (NYSE:FINV)
Number of Hedge Fund Holders: 11
Finvolution Group (NYSE:FINV) is a company based in China that operates in the online consumer finance industry. The company was established in 2007 and since then has developed innovative finance solutions and gained in-depth experience in credit-risk assessment, automated loan transaction, and fraud detection.
Finvolution Group (NYSE:FINV) is at the forefront of combatting online fraud in the financial market globally. The company has made an anti-fraud AI technology that employs advanced facial and document forgery detection systems coupled with voice synthesis algorithms. These advanced AI system services are integrated into the apps of leading international brands.
The company had 185.5 million cumulative users in China, the Philippines, and Indonesia as the first quarter of 2024 came to an end, the users grew by 8.3% YoY. China has the largest share of 159 million users, leveraging its technological and operational capabilities, the firm serves over 30 million borrowers in the Pan-Asian Market.
In Q1 2024, the company generated a revenue of $438.4 million (RMB3165 million) up by 3.75% Year over Year. Notably, the international revenue contributions of $82.4 million grew 32.9% compared to the previous year. Finvolution Group (NYSE:FINV) reported a net income of RMB532 million that improved 1% quarter over quarter.
Revenue growth was primarily driven by an expansion of transaction volume in the China market up 10.31% reaching RMB46.1 billion with an outstanding loan balance increased to RMB65 billion up by 4.4%.
In addition, the International Markets had a robust growth in transaction volume that reached RMB2.21 billion highlighting a year-over-year increase of 40.8%. On the other hand, the outstanding loan balance further expanded to RMB1.27 billion, an increase of 33.7%.
On March 28, 2024, Finvolution Group (NYSE:FINV) announced that its Philippines financial app platform Juanhand has entered into a strategic partnership with SeaBank, an innovative bank offering financial services in the region.
According to this agreement, SeaBank will be offering around PHP300 million in funds to facilitate and broaden Juanhand’s user’s access to financial services. With this pipeline agreement, the company is looking to expand its mission of expanding its international service offerings and connecting underserved borrowers with financial institutions.
Finvolution Group (NYSE:FINV) is highly undervalued with a P/E ratio of 4.61 and has a current trade price of $4.98 whereas analysts have given the stock a fair value of $18.49 using a discounted cash flow model.
Last year in March, the company’s stock price fell 16% although in the last quarter of 2022, a revenue growth of 25% was reported that was driven by a 25% jump in transaction volume.
However, Finvolution Group (NYSE:FINV) had a net revenue fall of 14% due to credit losses for quality assurance commitments spiked by a large volume of outstanding loan balances. The stock price took a hit after a major leadership change as Feng Zhang CEO resigned for personal reasons.
In the last 12 months, Finvolution Group (NYSE:FINV) generated an EPS of $1.09, which increased by an aggregate of 13% in the last 3 years. Seven analysts have given a ‘Buy’ rating as of July, according to analysts’ forecast, the company should generate a 13% growth in Earnings per Share each year. Finvolution has a lot of room to capitalize on the fast-growing market of China, which is projected to grow at a CAGR of 7% by 2027 and will be valued at $3.5 trillion.
According to Insider Monkey’s database, 11 hedge funds held stakes in the Finvolution Group (NYSE: FINV). GLG partners managed by Noam Gottesman is the largest stakeholder with total shares worth $13.5 million.
Overall FINV ranks 6th on our list of the best value penny stocks to buy. While we acknowledge the potential of FINV as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FINV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.