Is Fomento de Construcciones y Contratas, S.A. (BME:FCC) Potentially Undervalued?

Fomento de Construcciones y Contratas, S.A. (BME:FCC), is not the largest company out there, but it saw significant share price movement during recent months on the BME, rising to highs of €11.40 and falling to the lows of €9.19. 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 Fomento de Construcciones y Contratas' current trading price of €9.55 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 Fomento de Construcciones y Contratas’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Fomento de Construcciones y Contratas

What's the opportunity in Fomento de Construcciones y Contratas?

Good news, investors! Fomento de Construcciones y Contratas is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. 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 6.96x is currently well-below the industry average of 20.04x, meaning that it is trading at a cheaper price relative to its peers. Although, there may be another chance to buy again in the future. This is because Fomento de Construcciones y Contratas’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 kind of growth will Fomento de Construcciones y Contratas generate?

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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Fomento de Construcciones y Contratas, at least in the near future.

What this means for you:

Are you a shareholder? Although FCC is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to FCC, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on FCC for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Fomento de Construcciones y Contratas has 5 warning signs (and 2 which are significant) we think you should know about.

If you are no longer interested in Fomento de Construcciones y Contratas, 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.