What is the impact of the earnings shift on the company's valuation multiples (e.g., P/E, EV/EBITDA)?

Fundamental impact

The swing from a $0.70 M loss in Q2 2024 to a $3.3 M profit in Q2 2025 (‑$0.04 → +$0.15 EPS) represents a ~400 % earnings upside on a very low base. Because the market price has not yet fully reflected that turnaround, the P/E ratio will still be modestly compressed. If AAME’s current share price is still anchored to the 2024 loss‑era valuation (e.g., a P/E of 5–7 on a forward‑looking basis), the new earnings will push the forward‑P/E into the mid‑10s (≈ $1.50 / $0.15 ≈ 10×) – a clear re‑rating but still well below the 15‑20× range of comparable specialty insurers.

Similarly, the EV/EBITDA multiple will improve sharply. Assuming the three‑month EBITDA mirrors net income (≈ $3.3 M) and the company’s enterprise value (EV) is roughly $150 M (typical for a small‑cap insurer), the EV/EBITDA falls from ≈ 30× (when earnings were negative) to ≈ 12–14× after the profit swing. This lower multiple signals a healthier cash‑flow profile and gives the stock room for a multiple expansion as the market digests the higher premium‑revenue and equity‑gain tailwinds.

Trading implication

The earnings shift creates a valuation‑driven upside rather than a purely price‑momentum move. The stock is likely still under‑priced relative to its improved fundamentals, especially if the market is pricing in the prior loss. A long‑position on any pull‑back to the pre‑announcement level (or a modest breakout above the recent high) could capture the upside from a re‑rating. Conversely, if the price has already surged to a P/E of ~12–13×, the next catalyst will be the sustainability of premium growth; a tight stop just below the breakout level (≈ 5% under the recent high) protects against a reversal if the earnings boost proves one‑off. In short, the earnings swing compresses the P/E and EV/EBITDA, setting the stage for a valuation‑driven rally as the market re‑prices AAME toward its peer‑group multiples.