This Is the Cheapest Chinese Stock I Own

I own a handful of Chinese stocks, and one of the more obscure names is kicking off the new trading week by posting encouraging financial results. Qifu Technology (NASDAQ: QFIN) announced its fourth-quarter report on Monday morning. You may not be familiar with the company. The business is still worth exporing.

Qifu posted another quarter of strong growth. It also boosted its semiannual dividend. Despite the stock more than doubling last year it still trades at a low earnings multiple that got even lower after another big beat on the bottom line. Let's take a closer look at the business of Qifu and why it might be worthy of a ping on your investing radar.

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Making the right financial connections in rural China

Qifu bills itself as a leading artificial intelligence (AI)-empowered credit-tech platform in the world's second most populous nation. It provides credit solutions to a cumulative 56.9 million users with approved credit lines and 261.2 million total consumers, pairing them up with its growing network of 162 different providers of financial services.

The financial matchmaker serves both consumers as well as small and medium businesses. It stands out by serving the credit needs of folks living in some of China's smallest cities. A whopping 81% of its users are in China's rural Tier 3 and Tier 4 communities. It doesn't mean that it's skimping on tech. It leans on artificial intelligence to optimize its credit assessment tools. It's popular with the country's younger users, as 70% of its borrowers are younger than 40. It works for all parties, and repeat borrowers make up a major part of its business.

Revenue rose less than 3% to the U.S. dollar equivalent of $614.1 million, just a small step down form the 5% top-line growth it delivered for all of 2024. The bottom line is the better story. Better asset quality and lower funding costs on an already scalable business model led to adjusted net income rising 8% in the fourth quarter. Analysts were holding out for flat year-over-year growth.

The earnings beat isn't a surprise. Qifu has consistently landed ahead of where Wall Street pros are perched. An 8% positive surprise may actually seem anticlimactic after posting better than 20% beats in back-to-back reports before this week's update. Qifu's earnings per American depositary share (ADS) for stateside investors soared 56% to $5.81 for all of 2024.

Image source: Getty Images.

Returning money to its shareholders

Qifu's strong earnings on a per-share basis is being partly fueled by its aggressive share buybacks. Some investors aren't fans of repurchases, but that's generally the case when a company is eating its own cooking while a stock is going down. Qifu stock more than doubled through all of last year's buybacks, so it was a savvy buyer at lower price points than where the shares find themselves now.

It's not the only way that Qifu has been returning money to its stakeholders. On Monday it announced a semiannual dividend of $0.70 per ADS for the second half of 2024's operations. It follows a $0.60 distribution for every ADS that it declared back in September. This isn't a fluke. Qifu's payouts have increased every year since the company initiated a variable distribution policy in 2021, more than doubling along the way:

• 2021: $0.54 per ADS
• 2022: $0.72
• 2023: $1.08
• 2024: $1.30

The latest hike pushes its yield to 3%. Stellar earnings growth, strong recent capital appreciation, a knack for timely buybacks, and even a beefy payout don't make a stock cheap. Qifu has literally earned its way to a surprisingly compelling valuation. With the $5.81 per ADS it just announced for all of 2024, Qifu began this new week trading for just 7.4 times trailing earnings. Put in a more dramatic way, you could've picked up Qifu at the start of last year -- before the shares soared 138% -- for just 2.6 times what it would earn as 2024 played out.

Qifu has managed to improve its operations even as revenue has been lackluster. The 5% increase on the top line for 2024 follows flat results in the two prior years. Now imagine what happens when China's demand for personal and small business loans starts to grow. This is an attractive stock with a story that has yet to be truly told.

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Rick Munarriz has positions in Qifu Technology. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.