A Piece Of The Puzzle Missing From Acsion Limited's (JSE:ACS) 29% Share Price Climb

Acsion Limited (JSE:ACS) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 89% in the last year.

Even after such a large jump in price, Acsion may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.8x, since almost half of all companies in South Africa have P/E ratios greater than 9x and even P/E's higher than 13x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Acsion certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Acsion

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

Is There Any Growth For Acsion?

Acsion's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 87%. EPS has also lifted 20% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 7.2% shows it's about the same on an annualised basis.

With this information, we find it odd that Acsion is trading at a P/E lower than the market. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Final Word

Even after such a strong price move, Acsion's P/E still trails the rest of the market significantly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Acsion currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's 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.

Having said that, be aware Acsion is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

If you're unsure about the strength of Acsion's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.

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