Improved Earnings Required Before Dynavax Technologies Corporation (NASDAQ:DVAX) Shares Find Their Feet

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 15x, you may consider Dynavax Technologies Corporation (NASDAQ:DVAX) as a highly attractive investment with its 6.3x 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 so limited.

Dynavax Technologies certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong 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.

See our latest analysis for Dynavax Technologies

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Is There Any Growth For Dynavax Technologies?

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

If we review the last year of earnings growth, the company posted a terrific increase of 113%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 72% per year as estimated by the five analysts watching the company. Meanwhile, the broader market is forecast to expand by 11% per year, which paints a poor picture.

In light of this, it's understandable that Dynavax Technologies' P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Dynavax Technologies' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Dynavax Technologies' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Dynavax Technologies (1 is potentially serious!) that you should be aware of before investing here.

If you're unsure about the strength of Dynavax Technologies' 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.