Why Continental Aktiengesellschaft (FRA:CON) Is A Star In A Falling Market

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

The risk of investing in the stock market is a systematic crash. This is when all the stock prices start falling around the same time. But this risk is also an opportunity for those that understand the fickle nature of the market. High quality, proven companies tend to stick around in the long run, although their share price may be temporarily impacted by a crash. This is the best time to buy stocks like Continental Aktiengesellschaft at a discount.

See our latest analysis for Continental

Continental Aktiengesellschaft develops products, systems, and services for customers in various industries worldwide. Started in 1871, and headed by CEO Elmar Degenhart, the company provides employment to 245.69k people and with the stock's market cap sitting at €25b, it comes under the large-cap category. Generally, large-cap stocks are well-resourced and well-established meaning that a bear market will cause it to rejig some short-term capital allocations, but stock market volatility is hardly detrimental to its financial health and business operations. Therefore large-cap stocks are a safe bet to buy more of when the wider market is going down and down.

Continental currently has €6.3b debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Continental generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 29.65x, which is well-above the minimum requirement of 3x. Moreover, its operating cash flows amply covers its total debt by 69%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning CON's financial strength will continue to let it thrive in a fickle market.

CON’s annual earnings growth rate has been positive over the last five years, with an average rate of 6.1%, overtaking the industry growth rate of -2.1%. It has also returned an ROE of 15% recently, above the industry return of 9.4%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in Continental as an investment over the long run.

Next Steps:

Continental makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Continental? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I've put together of other things you should consider before you buy:

1. Future Outlook: What are well-informed industry analysts predicting for CON’s future growth? Take a look at our free research report of analyst consensus for CON’s outlook.
2. Valuation: What is CON worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CON is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.