While ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the BME over the last few months, increasing to €25.81 at one point, and dropping to the lows of €19.55. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether ACS Actividades de Construcción y Servicios’ current trading price of €21.05 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at ACS Actividades de Construcción y Servicios’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What’s the opportunity in ACS Actividades de Construcción y Servicios?
The share price seems sensible at the moment according to my price multiple model, where I compare the company’s price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 7.97x is currently trading slightly below its industry peers’ ratio of 11.79x, which means if you buy ACS Actividades de Construcción y Servicios today, you’d be paying a decent price for it. And if you believe ACS Actividades de Construcción y Servicios should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that ACS Actividades de Construcción y Servicios’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will ACS Actividades de Construcción y Servicios generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 24% over the next couple of years, the future seems bright for ACS Actividades de Construcción y Servicios. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in ACS’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at ACS? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on ACS, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for ACS, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we’ve spotted 4 warning signs for ACS Actividades de Construcción y Servicios (of which 1 shouldn’t be ignored!) you should know about.
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This article by Simply Wall St is general in nature. 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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