Fintech Alert: Keep Yiren Digital Stock on Your Watchlist

Yiren Digital (NYSE:YRD) is up by nearly 75% year-to-date. Over the past twelve months, YRD stock has gained by more than 134%. With such a strong performance, many questions emerge.

For starters, what’s the story with this China-based fintech firm? While not an obscure stock per se, admittedly it is not one of the most talked-about stocks out there, even among U.S.-listed Chinese stocks.

That’s not all. Why exactly have shares performed so well? Did speculative frenzy drive its big move higher, or was it driven mainly by improving fundamentals?

Most importantly, following this strong performance, more of which happened during last fall and winter, is another big jump in price just around the corner?

For the answer to these, and other questions, about Yiren Digital, let’s take a closer look, and find out whether there’s speculative hype, or well-placed bullishness, at play here.

YRD Stock at a Glance

Yiren Digital operates an online financial marketplace in its home market. Through the company’s platform, users can obtain personal and business loans, which are originated by Yiren but financed by third-party institutional funding partners.

Yet while it was Yiren’s primary business in the past, the company has in recent years diversified the offerings available through its platform.

While loan facilitation fees still make up a plurality of revenue, insurance brokerage commissions, as well as commissions from the sale of non-financial services, made up a majority of last quarter’s revenue ($182.6 million).

Alongside having a diverse revenue mix, the company has reported a high level of profitability in recent quarters.

Last quarter, earnings came in at $72.7 million, or 80 cents per American depository share. Not too shabby, given that YRD’s U.S.-listed ADS changes hands for only $2.64 per share today.

Yes, there’s a reason why you can buy YRD stock today at a seemingly bargain-basement price. Over the past few years, controversies and challenges have affected its reputation among stateside investors.

However, while still high-risk because of these issues, there may be high potential rewards, if the company keeps moving past them.

Already Kicked Off a Comeback

During the late 2010s, Yiren Digital was a popular play for those looking for exposure to China’s growing middle class. At one point, bullishness for the stock pushed it to prices north of $50 per share.

Unfortunately, the boom in Chinese peer-to-peer lending turned into a bust. This bust parlayed into a regulatory crackdown.

Yiren, which initially operated as a peer-to-peer lending marketplace, then had to move to its current institutional funding-based financing model.

This big change, coupled with challenges created by the pandemic, resulted in a big contraction in the company’s revenue. Put it all together, and it’s no surprise that, a little over five years after hitting $50 per share, YRC stock was trading for less than $1 per share.

But since hitting sub-$1 per share prices, the situation here has started to improve in a big way. The reporting of strong quarterly results, plus the stock’s regaining of compliance with the New York Stock Exchange, kicked off the aforementioned super-rally for shares.

Although YRC has traded sideways since February, I wouldn’t rule out the possibility for another outsized spike in price. The caveat, however, is it may not necessarily happen in the immediate future.

The Verdict

Improved results notwithstanding, Yiren’s past continues to weigh on shares. So too, does uncertainty related to China’s slower-than-expected post-Covid recovery. Admittedly, these issues, especially those emerging more recently, could affect results in the quarters ahead.

Yet even with this risk, for investors interested in speculative growth plays, this stock is still worth considering.

Besides continued improvements with its existing operations, Yiren could help to improve sentiment, by continuing to diversify its financial services offerings. The company recently announced an acquisition deal that will do just that, and there’s plenty left in its war chest ($800.6 million) to make additional such deals.

In the event Yiren’s diversification efforts lead to continued strong results, and issues like the post-Covid slump subside, this could lead to a resurgence in investor confidence. In turn, this may result in a massive re-rating for YRD stock.

YRD stock earns a B rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.