Jiayin Group Inc. (NASDAQ:JFIN) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 165% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, it would still be understandable if you think Jiayin Group is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.5x, considering almost half the companies in the United States' Consumer Finance industry have P/S ratios above 1.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Jiayin Group's P/S Mean For Shareholders?

Jiayin Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Jiayin Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiayin Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 90%. The latest three year period has also seen an excellent 278% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 34% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Jiayin Group's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Jiayin Group's P/S?

Jiayin Group's stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Jiayin Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Jiayin Group with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Jiayin Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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