Should You Think About Buying Construcciones y Auxiliar de Ferrocarriles, S.A. (BME:CAF) Now?

Construcciones y Auxiliar de Ferrocarriles, S.A. (BME:CAF), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the BME. The company is now trading at yearly-high levels following the recent surge in its share price. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Construcciones y Auxiliar de Ferrocarriles’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Construcciones y Auxiliar de Ferrocarriles

What Is Construcciones y Auxiliar de Ferrocarriles Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 12.07x is currently trading slightly above its industry peers’ ratio of 12.07x, which means if you buy Construcciones y Auxiliar de Ferrocarriles today, you’d be paying a relatively reasonable price for it. And if you believe that Construcciones y Auxiliar de Ferrocarriles should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Construcciones y Auxiliar de Ferrocarriles’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 does the future of Construcciones y Auxiliar de Ferrocarriles 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. Construcciones y Auxiliar de Ferrocarriles' earnings over the next few years are expected to increase by 64%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in CAF’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 track record of its management team. Have these factors changed since the last time you looked at CAF? 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 an eye on CAF, 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 CAF, 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.

If you want to dive deeper into Construcciones y Auxiliar de Ferrocarriles, you'd also look into what risks it is currently facing. For example - Construcciones y Auxiliar de Ferrocarriles has 1 warning sign we think you should be aware of.

If you are no longer interested in Construcciones y Auxiliar de Ferrocarriles, 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.