Amotiv Limited (ASX:AOV) Might Not Be As Mispriced As It Looks After Plunging 28%

Unfortunately for some shareholders, the Amotiv Limited (ASX:AOV) share price has dived 28% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

In spite of the heavy fall in price, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Amotiv as an attractive investment with its 11.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Amotiv could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Amotiv

Want the full picture on analyst estimates for the company? Then our free report on Amotiv will help you uncover what's on the horizon.

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

Amotiv's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 20%. Regardless, EPS has managed to lift by a handy 15% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 15% per annum during the coming three years according to the analysts following the company. That's shaping up to be similar to the 15% each year growth forecast for the broader market.

In light of this, it's peculiar that Amotiv's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

Amotiv's P/E has taken a tumble along with its share price. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Amotiv's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Amotiv is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than Amotiv. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.