Earnings Working Against EZZ Life Science Holdings Limited's (ASX:EZZ) Share Price Following 25% Dive

To the annoyance of some shareholders, EZZ Life Science Holdings Limited (ASX:EZZ) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 159% in the last twelve months.

Since its price has dipped substantially, EZZ Life Science Holdings may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.8x, since almost half of all companies in Australia have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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Recent times have been advantageous for EZZ Life Science Holdings as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for EZZ Life Science Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on EZZ Life Science Holdings.

How Is EZZ Life Science Holdings' Growth Trending?

In order to justify its P/E ratio, EZZ Life Science Holdings would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 150%. The latest three year period has also seen an excellent 742% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 7.1% per year during the coming three years according to the only analyst following the company. With the market predicted to deliver 15% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that EZZ Life Science Holdings' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Shares in EZZ Life Science Holdings have plummeted and its P/E is now low enough to touch the ground. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of EZZ Life Science Holdings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with EZZ Life Science Holdings (including 1 which doesn't sit too well with us).

If you're unsure about the strength of EZZ Life Science Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.