ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies in Spain have price-to-earnings ratios (or "P/E's") above 18x, you may consider ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) as an attractive investment with its 13.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

ACS Actividades de Construcción y Servicios certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for ACS Actividades de Construcción y Servicios

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ACS Actividades de Construcción y Servicios.

Is There Any Growth For ACS Actividades de Construcción y Servicios?

The only time you'd be truly comfortable seeing a P/E as low as ACS Actividades de Construcción y Servicios' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 26% gain to the company's bottom line. The latest three year period has also seen an excellent 44% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 1.2% per year during the coming three years according to the eleven analysts following the company. Meanwhile, the broader market is forecast to expand by 11% each year, which paints a poor picture.

With this information, we are not surprised that ACS Actividades de Construcción y Servicios is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that ACS Actividades de Construcción y Servicios maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for ACS Actividades de Construcción y Servicios (1 can't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than ACS Actividades de Construcción y Servicios. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.