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When Should You Buy Mota-Engil, SGPS, S.A. (ELI:EGL)?

Simply Wall St
·4-min read

Mota-Engil, SGPS, S.A. (ELI:EGL), which is in the construction business, and is based in Portugal, received a lot of attention from a substantial price movement on the ENXTLS over the last few months, increasing to €1.86 at one point, and dropping to the lows of €1.02. 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 Mota-Engil SGPS's current trading price of €1.09 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Mota-Engil SGPS’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Mota-Engil SGPS

Is Mota-Engil SGPS still cheap?

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. 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 9.75x is currently trading slightly above its industry peers’ ratio of 9.53x, which means if you buy Mota-Engil SGPS today, you’d be paying a relatively sensible price for it. And if you believe that Mota-Engil SGPS should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. 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.

What does the future of Mota-Engil SGPS look like?

ENXTLS:EGL Past and Future Earnings April 22nd 2020
ENXTLS:EGL Past and Future Earnings April 22nd 2020

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. Mota-Engil SGPS’s earnings over the next few years are expected to increase by 33%, 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 EGL’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 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 optimistic forecast is encouraging for EGL, 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.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Mota-Engil SGPS. You can find everything you need to know about Mota-Engil SGPS in the latest infographic research report. If you are no longer interested in Mota-Engil SGPS, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.