Lufax (LU) Shares Climb 17.8% Today

One of Wall Street's biggest winners of the day is Lufax, a credit services company whose shares have climbed 17.8% to a price of $2.54 -- 26.02% below its average analyst target price of $3.44.

The average analyst rating for the stock is buy. LU may have outstripped the S&P 500 index by 16.8% so far today, but it has lagged behind the index by 42.4% over the last year, returning -59.0%.

Lufax Holding Ltd operates a technology-empowered personal financial services platform in China. Lufax's trailing 12 month P/E ratio is 3.3, based on its trailing EPS of $0.78. The company has a forward P/E ratio of 5.7 according to its forward EPS of $0.45 -- which is an estimate of what its earnings will look like in the next quarter.

As of the third quarter of 2022, the average Price to Earnings (P/E) ratio for US financial services companies is 13.34, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

Lufax's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 4,987 -153 4,834 -30.09
2020-12-31 7,121 -206 6,915 243.99
2019-12-31 2,192 -182 2,010 n/a
  • Average free cash flow: $4,586,451,666.70
  • Average free cash flown growth rate: 107.0 %
  • Coefficient of variability (lower numbers indicating more stability): 53.7 %

With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in LU have received an annualized dividend yield of 156.0% on their capital.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.

Lufax's P/B ratio of 0.1 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Financial Services sector was 1.95 as of the third quarter of 2022.

With a very low P/E ratio, an exceptionally low P/B ratio, and an irregular stream of positive cash flows with an upwards trend, we can conclude that Lufax is probably undervalued at current prices. The stock presents poor growth indicators because of its strong net margins with a stable trend, and an inflated PEG ratio.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.