Vita Life Sciences Limited (ASX:VLS) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Vita Life Sciences Limited (ASX:VLS) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 72%.

Even after such a large jump in price, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Vita Life Sciences as an attractive investment with its 15.3x 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.

The earnings growth achieved at Vita Life Sciences over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Vita Life Sciences

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Vita Life Sciences will help you shine a light on its historical performance.

Is There Any Growth For Vita Life Sciences?

The only time you'd be truly comfortable seeing a P/E as low as Vita Life Sciences' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 39% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 28% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Vita Life Sciences is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Vita Life Sciences' P/E?

Despite Vita Life Sciences' shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Vita Life Sciences revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Vita Life Sciences has 2 warning signs we think you should be aware of.

You might be able to find a better investment than Vita Life Sciences. 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.