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 20x, you may consider ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) as an attractive investment with its 15.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

We've discovered 2 warning signs about ACS Actividades de Construcción y Servicios. View them for free.

ACS Actividades de Construcción y Servicios could be doing better as it's been growing earnings less than most other companies lately. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

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.

What Are Growth Metrics Telling Us About The Low P/E?

ACS Actividades de Construcción y Servicios' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 7.8%. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 5.0% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 12% per year, which is noticeably more attractive.

In light of this, it's understandable that ACS Actividades de Construcción y Servicios' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On ACS Actividades de Construcción y Servicios' P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of ACS Actividades de Construcción y Servicios' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - ACS Actividades de Construcción y Servicios has 2 warning signs we think you should be aware of.

If you're unsure about the strength of ACS Actividades de Construcción y Servicios' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.