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EZZ Life Science Holdings Limited (ASX:EZZ) Stock Catapults 27% Though Its Price And Business Still Lag The Market
EZZ Life Science Holdings Limited (ASX:EZZ) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 70%.
Although its price has surged higher, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 19x, you may still consider EZZ Life Science Holdings as an attractive investment with its 10.6x 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.
Recent times have been advantageous for EZZ Life Science Holdings as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for EZZ Life Science Holdings
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, EZZ Life Science Holdings would need to produce sluggish growth that's trailing the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 150% last year. The latest three year period has also seen an excellent 742% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 5.8% per annum over the next three years. With the market predicted to deliver 15% growth per year, the company is positioned for a weaker earnings result.
With this information, we can see why EZZ Life Science Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
The latest share price surge wasn't enough to lift EZZ Life Science Holdings' P/E close to the market median. 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 EZZ Life Science Holdings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
And what about other risks? Every company has them, and we've spotted 2 warning signs for EZZ Life Science Holdings (of which 1 is potentially serious!) you should know about.
You might be able to find a better investment than EZZ Life Science Holdings. 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).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.