Should you invest in Avaya stock as shares spike 22% on solid Q4 results?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Nov 22, 2021
  • Avaya shares on Monday spiked more than 22% after reporting its most recent quarterly results.
  • The company announced its fiscal Q4 revenue and earnings before markets opened, beating expectations.
  • The stock trades at a compelling forward P/E ratio of 6.96.

On Monday, Avaya Holdings Corp (NYSE:AVYA) shares rallied by more than 22% after reporting its fiscal fourth-quarter results. The company announced its most recent quarterly results before markets opened, smashing analyst expectations on revenue and earnings.

Avaya reported FQ3 non-GAAP earnings per share of $0.77, beating the consensus for analyst expectations of -$0.30. 

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In addition, its GAAP EPS of $0.06, exceeded the expectation of -$0.30, while revenue for the quarter increased marginally by 0.4% from the same quarter a year ago to $760 million, surpassing the average Street estimate by $21.3 million.

Is Avaya stock undervalued?

From an investment perspective, Avaya shares trade at a steep P/E ratio of 276.04, making the stock less attractive to short-term investors. However, its compelling forward P/E ratio of 6.96, could be an attractive option for investors willing to overlook its performance over the last twelve months.

In addition, analysts are optimistic about the company’s earnings growth prospects, forecasting an EPS increase of about 10% per year, over the next five years. Therefore, growth investors could also find AVYA as an exciting option for their portfolios.

Source – TradingView

Technically, Avaya shares seem to have recently spiked to trade above the 100-day moving average in the intraday chart. As a result, the stock has rallied closer to the overbought conditions of the 14-day RSI.

As a result, Avaya shares could pullback in the short term before extending the current rally. Therefore, investors could target short-term pullbacks at about $19.44, or lower at $17.13. On the other hand, if the stock extends the current gains, it could find resistance at about $23.43, or higher at $25.69.

It could be time to cash out

In summary, although Avaya offers compelling growth prospects at an attractive forward P/E ratio, the stock seems to have spiked significantly after Monday’s earnings beat.

Therefore, it could be time to take some profits ahead of a potential technical pullback.

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