Autoscope Technologies Corporation's (NASDAQ:AATC) Shares Leap 26% Yet They're Still Not Telling The Full Story

Autoscope Technologies Corporation (NASDAQ:AATC) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The annual gain comes to 112% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Autoscope Technologies may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.1x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 36x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For example, consider that Autoscope Technologies' financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.

Check out our latest analysis for Autoscope Technologies

Although there are no analyst estimates available for Autoscope Technologies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Autoscope Technologies would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 53%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 38% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is predicted to deliver 13% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

With this information, we find it odd that Autoscope Technologies is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

Despite Autoscope Technologies' shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Autoscope Technologies currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

Having said that, be aware Autoscope Technologies is showing 3 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Autoscope 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.
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