Is It Time To Consider Buying Fomento de Construcciones y Contratas, S.A. (BME:FCC)?

Fomento de Construcciones y Contratas, S.A. (BME:FCC), 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 recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today we will analyse the most recent data on Fomento de Construcciones y Contratas’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Fomento de Construcciones y Contratas

What Is Fomento de Construcciones y Contratas 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. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Fomento de Construcciones y Contratas’s ratio of 17.6x is trading slightly above its industry peers’ ratio of 16.08x, which means if you buy Fomento de Construcciones y Contratas today, you’d be paying a relatively reasonable price for it. And if you believe Fomento de Construcciones y Contratas should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Fomento de Construcciones y Contratas’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Fomento de Construcciones y Contratas look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Fomento de Construcciones y Contratas' earnings over the next few years are expected to increase by 56%, 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 FCC’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 financial strength of the company. Have these factors changed since the last time you looked at FCC? 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 FCC, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for FCC, 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.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Fomento de Construcciones y Contratas has 6 warning signs and it would be unwise to ignore these.

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.