Is ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) Potentially Undervalued?

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 €24.82 at one point, and dropping to the lows of €21.02. 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 €22.60 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.

Check out our latest analysis for ACS Actividades de Construcción y Servicios

What's the opportunity in ACS Actividades de Construcción y Servicios?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 10.19x is currently trading slightly below its industry peers’ ratio of 11.75x, 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. Although, there may be an opportunity to buy in the future. This is because ACS Actividades de Construcción y Servicios’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of ACS Actividades de Construcción y Servicios look like?

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. Though in the case of ACS Actividades de Construcción y Servicios, it is expected to deliver a relatively unexciting earnings growth of 3.8%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? ACS’s future growth appears to have been factored into the current share price, 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 confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on ACS, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 4 warning signs for ACS Actividades de Construcción y Servicios (2 can't be ignored!) and we strongly recommend you look at these before investing.

If you are no longer interested in ACS Actividades de Construcción y Servicios, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.