I have seen many examples of the market not having a clue how to...

I have seen many examples of the market not having a clue how to value a stock immediately after an earnings release, particularly for small companies. Today's price action is just another example. First we had those jumping in on their "feeling" that the results were outstanding (71% increase in NPAT). Then came those sellers after scanning the financials (debt increase, bad debtors, shares issued to staff, moving to 30% tax rate etc).

For me, I prefer to try to work out where the company is heading over the next few years, and to assess its quality and value.

Here is my analysis of how the company has performed since I bought in during FY20:

AVITA changes in 3 years from FY20 to FY23:
	FY20	FY23	% Change	Comments
Share Price	$0.190	$0.885	366%	FY20 price on my initial buy in (1 Apr 2020)
Market Cap ($M)	$41	$236	476%	Note Market Cap has increased more than share price
EPS (cents)	4.2	11.7	179%
DPS (cents)	1.8	4.4	144%
ROE	15.4%	32.7%	112%
P/E	7.9	7.6	N/A	Almost no change despite much higher quality (6x market cap, double profitability, diversity of clients geography and revenue, engineering expertise etc)

For me, it is incomprehensible how the P/E is unchanged despite the enormous improvement in quality of this company:

• Much higher market cap, bringing in more investors who would not look at a company with MCap < $100M
• A doubling in profitability to ROE > 30%, and the ability to reinvest profits at much higher rates of return (> 40%)
• Much greater diversity of clients, service locations, service offerings
• Much stronger moat thanks to expansion of engineering expertise
• Move away from lower return services such as domestic scaffolding
• Entering an era of steady 100% franking credits

IMO, Avita deserves a higher P/E following all of these changes for the better over the last 3 years. It is one of the few companies able to give EBITDA growth guidance of 29% for the upcoming FY.