Should You Investigate Fomento de Construcciones y Contratas, S.A. (BME:FCC) At €9.06?

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 €13.36 and falling to the lows of €8.82. 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 €9.06 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?

Great news for investors – Fomento de Construcciones y Contratas is still trading at a fairly cheap price 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 6.71x is currently well-below the industry average of 14.28x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Fomento de Construcciones y Contratas’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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?

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 a negative profit growth of -11% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Fomento de Construcciones y Contratas. This certainty tips the risk-return scale towards higher risk.

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. We 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, we recommend you dig deeper 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.

So while earnings quality is important, it's equally important to consider the risks facing Fomento de Construcciones y Contratas at this point in time. Every company has risks, and we've spotted 5 warning signs for Fomento de Construcciones y Contratas (of which 2 are significant!) 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.