Qifu Technology, Inc. (QFIN Quick QuoteQFIN - Free Report) stock has grown remarkably over the past six months. The stock has gained 106%, significantly outperforming the industry's 46% rally.

Its performance is significantly better than competitors like SLM Corporation (SLM Quick QuoteSLM - Free Report) and Credit Acceptance Corporation (CACC Quick QuoteCACC - Free Report) . SLM has gained 28% in the same period, while CACC has lost 8% of its value.

Image Source: Zacks Investment Research

Given the remarkable upsurge in the Qifu stock, investors might wonder if the current level still offers a buying opportunity. Let us find out.

QFIN’s AI-Driven Model Fuels Growth

QFIN's business model targets young, urban Chinese professionals with stable, white-collar jobs, providing them with short-term loans. Unlike traditional banks, which assess multiple variables like credit history, income and assets, QFIN simplifies the loan process by leveraging AI, machine learning and big data. These technologies allow QFIN to evaluate the ability of borrowers to repay their loans, reducing the risk of defaults.

The company minimizes risks by focusing on individuals with high, consistent salaries while offering loans with zero collateral but higher interest rates. This approach has allowed QFIN to scale effectively, expand its market share and achieve profitability. The company's ability to efficiently assess risk through data-driven insights sets it apart from conventional lenders and digital competitors, positioning QFIN for sustained growth and a strong competitive edge in the digital lending market.

QFIN’s Q3 Progress Reflects Strong Performance

QFIN's financial performance remains robust, as demonstrated by its solid third-quarter 2024 results. Qifu reported revenues of RMB 4.37 billion in the third quarter, reflecting a 2.1% year-over-year increase. The company achieved remarkable 54.5% year-over-year growth in non-GAAP net income, highlighting its effective cost management and operational efficiency. Compared to the second quarter, where net revenue and non-GAAP net income were RMB 4.16 billion and RMB 1.41 billion, respectively, Qifu made significant progress.

Additionally, the company expanded its financial institutional partners to 162, up from 160 in the second quarter. QFIN’s user base also grew from 53.6 million in the second quarter to 55.2 million in the third, reflecting its successful marketing strategies and efforts to attract new customers.

QFIN's Strong Liquidity and High Profitability

QFIN's strong financial position is highlighted by its robust cash reserves of $1.4 billion at the end of the third quarter, with minimal current debt of just $149 million. This healthy cash balance provides the company with ample liquidity to fund growth initiatives. With a current ratio of 2.56, QFIN exceeds the industry average of 2.15, indicating its ability to comfortably meet short-term obligations.

Image Source: Zacks Investment Research

Additionally, QFIN's impressive return on equity of 24.4%, far surpassing the industry’s average of 3.6%, reflects the company's exceptional profitability and efficient use of shareholder capital. This combination of solid liquidity and high profitability positions QFIN for sustained growth, providing investors with confidence in its financial stability and operational effectiveness. The company's strong financial metrics further underline its competitive edge in the digital lending sector, enhancing its potential for long-term success.

Image Source: Zacks Investment Research

QFIN’s Risks: Defaults, Data Breaches and Regulations

While QFIN is riding a bullish trend, investors should consider several risks. As a digital lending company that offers unsecured loans, there is a risk that borrowers could default if they fall into debt or lose their jobs, which could significantly impact QFIN’s profitability. Another potential risk is data security. A data breach could severely damage Qifu’s reputation, eroding customer trust and causing borrowers to seek alternatives. Additionally, any abrupt changes in regulatory policies could pose a threat to the company’s operations. Stricter lending regulations or new fintech policies could increase compliance costs or restrict lending practices, affecting overall business performance. These risks underscore the importance of careful monitoring of QFIN’s performance and external market conditions.

QFIN, being a Chinese company listed in the United States, could face challenges under Trump’s administration due to his consistent hardline approach to trade. Trump has repeatedly signaled his intent to take a tough stance against China, which may lead to the imposition of tariffs and escalating trade tensions. The geopolitical uncertainty surrounding U.S.-China relations could undermine investors’ confidence, negatively affecting QFIN’s stock performance.

QFIN: Wait and See for Potential Correction

QFIN’s 106% stock increase over the past six months has outpaced its competitors, demonstrating strong growth driven by its AI-powered business model. While the company’s solid financial performance, high profitability and expanding market share reflect its potential, such a significant price surge may be followed by a market correction. The risk of defaults, data breaches, and regulatory changes further underscores the need for caution. Given the current high price levels, a "wait and see" strategy is advisable. Investors should hold off on new positions until the stock stabilizes, closely monitoring any potential pullback or market shifts.

QFIN currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.