Atea Pharmaceuticals, Inc.'s (NASDAQ:AVIR) Shares Not Telling The Full Story

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 16x, you may consider Atea Pharmaceuticals, Inc. (NASDAQ:AVIR) as an attractive investment with its 11.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

While the market has experienced earnings growth lately, Atea Pharmaceuticals' earnings have gone into reverse gear, which is not great. 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.

View our latest analysis for Atea Pharmaceuticals

Keen to find out how analysts think Atea Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Atea Pharmaceuticals' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Atea Pharmaceuticals' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.5%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 35% per year over the next three years. That's shaping up to be materially higher than the 11% each year growth forecast for the broader market.

In light of this, it's peculiar that Atea Pharmaceuticals' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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.

Our examination of Atea Pharmaceuticals' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Atea Pharmaceuticals with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Atea Pharmaceuticals. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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.