Lacklustre Performance Is Driving Fomento de Construcciones y Contratas, S.A.'s (BME:FCC) 27% Price Drop

The Fomento de Construcciones y Contratas, S.A. (BME:FCC) share price has fared very poorly over the last month, falling by a substantial 27%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.

In spite of the heavy fall in price, given about half the companies in Spain have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Fomento de Construcciones y Contratas as a highly attractive investment with its 6.8x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Fomento de Construcciones y Contratas has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Fomento de Construcciones y Contratas

Want the full picture on analyst estimates for the company? Then our free report on Fomento de Construcciones y Contratas will help you uncover what's on the horizon.

Is There Any Growth For Fomento de Construcciones y Contratas?

Fomento de Construcciones y Contratas' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 137% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 30% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 5.5% each year during the coming three years according to the four analysts following the company. That's not great when the rest of the market is expected to grow by 13% each year.

With this information, we are not surprised that Fomento de Construcciones y Contratas is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Fomento de Construcciones y Contratas' P/E?

Shares in Fomento de Construcciones y Contratas have plummeted and its P/E is now low enough to touch the ground. 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 Fomento de Construcciones y Contratas' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Fomento de Construcciones y Contratas is showing 5 warning signs in our investment analysis, and 2 of those are significant.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.