A Piece Of The Puzzle Missing From Avax S.A.'s (ATH:AVAX) 26% Share Price Climb

Avax S.A. (ATH:AVAX) shareholders have had their patience rewarded with a 26% share price jump in the last month. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, there still wouldn't be many who think Avax's price-to-earnings (or "P/E") ratio of 10.8x is worth a mention when the median P/E in Greece is similar at about 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

As an illustration, earnings have deteriorated at Avax over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Avax

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

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

In order to justify its P/E ratio, Avax would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 199% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 8.3% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Avax is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Avax appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 Avax revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Avax (1 is a bit unpleasant!) that you need to be mindful of.

If you're unsure about the strength of Avax's 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.