Why Mota-Engil, SGPS, S.A. (ELI:EGL) Could Be Worth Watching

While Mota-Engil, SGPS, S.A. (ELI:EGL) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the ENXTLS over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Mota-Engil SGPS’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Mota-Engil SGPS

What's The Opportunity In Mota-Engil SGPS?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Mota-Engil SGPS’s ratio of 15.54x is trading slightly above its industry peers’ ratio of 11.26x, which means if you buy Mota-Engil SGPS today, you’d be paying a relatively sensible price for it. And if you believe Mota-Engil SGPS 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 Mota-Engil SGPS’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.

Can we expect growth from Mota-Engil SGPS?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Mota-Engil SGPS' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? EGL’s optimistic future growth appears to have been factored into the current share price, 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 EGL? 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 EGL, 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 EGL, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Mota-Engil SGPS at this point in time. For instance, we've identified 4 warning signs for Mota-Engil SGPS (2 shouldn't be ignored) you should be familiar with.

If you are no longer interested in Mota-Engil SGPS, 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.