Lufax Holding (NYSE:LU) is back in focus after securities class action lawsuits followed its removal of auditor PwC. The auditor had questioned undisclosed related party transactions and prior audit opinions, putting governance and transparency under scrutiny.

The recent lawsuits and auditor concerns have come after a long weak patch for investors, with a 30 day share price return of 5.91% offering only a short break. This followed a 90 day share price decline of 22.75% and a 1 year total shareholder return decline of 33.45%.

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With the stock at US$1.97 after multi year negative returns and fresh questions around audits, lawsuits and governance, is Lufax Holding now trading below what its fundamentals suggest, or is the market already pricing in the road ahead?

Preferred Price-to-Sales of 0.4x: Is it justified?

Lufax Holding trades on a P/S of 0.4x, which looks low versus its recent US$1.97 share price when set against peers and the wider Consumer Finance industry.

The P/S ratio compares the company’s market value to its revenue and is often used when earnings are weak or negative, as is the case here with Lufax Holding currently loss making. For a lender and credit enablement platform, revenue reflects the scale of its loan and fee based activity, so this multiple gives a cleaner read than profit based measures right now.

Several data points point to the P/S level being on the cheaper side. The stock is flagged as trading at good value compared to peers and industry, and its 0.4x P/S is described as good value versus the US Consumer Finance industry average of 1.4x. Against an estimated fair P/S of 2.1x, the current ratio also sits well below a level the market could move towards if sentiment and fundamentals were to line up more closely.

The gap is also visible against a narrower peer group, where the average P/S sits at 0.9x, more than double Lufax Holding’s current level. That kind of discount, combined with forecasts for revenue to grow at 14.3% per year compared to 11.2% for the US market, suggests the stock is being priced on more cautious terms than those headline growth expectations might imply.

Result: Price-to-Sales of 0.4x (UNDERVALUED)

However, the loss of CN¥3,870.62m, together with the auditor and lawsuit issues, could still weigh on sentiment and challenge any case built around the low P/S.

Next Steps

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Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.