MasTec (MTZ, Financial) is a U.S.-based firm that undertakes Infrastructure construction assignments in industries such as communications, oil and gas, renewable energy etc.
In its latest news release, it has published decreased expectations for the year 2015, consequential to the anticipatory slump in international oil prices and sluggish wireless operations.
MasTec has also witnessed price volatility lately. Therefore it has maintained a low profile and has been a less hyped investment opportunity. Let’s unearth the reasons.
Why Keep Low
Before we discover why MasTec is a less hyped investment opportunity let's understand what qualifies as a low profile investment opportunity.
Low analyst Coverage: The number of financial analysts following a stock is an indicator of publicity enveloping it and the investor attention it garners. MasTec has not really gained much of analyst attention and hence has maintained a low profile when it comes to publicity. They have rather focused on their core business process.
Market Cap: It refers to the market value of the total outstanding shares of an organization. It is a factor of degree of analyst attention garnered. Analysts tend to cover companies that raise substantial amount of capital and hence possess high market capitalization. To identify a low-profile stock, one has to focus on a respectable yet average market capitalization size. S&P defines the mid-sized companies as those that have a market capitalization in the range of $1.4 billion to $5.9 billion.
Relative Valuations: Valuation ratios such as P/E ratio reveal little under solitary scrutiny. However, relative valuations i.e. comparison amongst peer group and relevant industry divulge the hype surrounding a stock. A P/E ratio is the earnings multiple an investor is willing to fork out for one dollar earning of the stock. A stock carrying the burden of higher market expectations will tend to reflect a higher PE ratio. Subject to the fundamentals being sound, if a firm’s relative valuations are lesser than that of its peers and industry average, it represents an investment opportunity and that is what MasTec exactly does.
Why MasTec is looking attractive
Sound Fundamentals: MasTec is a 90-year-old firm with proven credentials. Sales at MasTec have grown at a compounded annual growth rate of 25.69% in the past 5 years. In comparison, the industry sales have grown at 8.47%. These figures emphasize that the firm has sound fundamentals is on a growth trajectory.
Analyst Coverage: MASTEC is covered by 12 analyst firms. To put things in perspective, Apple Inc. (AAPL, Financial) is followed by approximately 65 analysts. This leads us to believe that while MAS TEC is not a dormant stock disposed to neglect by the analysts, it is also not prone to catching a lot of eyes in the Wall Street speculation gamut.
Plummeting Stock Price: MasTec has witnessed stock volatility lately as is evident by the graph below. This could be considered an ideal time to invest in the company. Investing in fundamentally sound stocks when they are relatively under-priced is termed Value Investing. It is an investment ideology germinated by Benjamin Graham and David Dodd in the 1930s and holds good till date for high yielding stable portfolios.
Relative Valuations reveal it’s Under-pricing: A quick study of the Valuations of MasTec, juxtaposed with those of its peers and the industry (Construction & Engineering), reveal that it is under-priced.
As mentioned earlier, lower relative valuations tantamount to the scrip trading inexpensively and hence signals a great investment opportunity.
Conclusion
MasTec is a 90-year-old firm with roots firmly grasping sound fundamentals. It has experienced turbulence lately, in the form of stock volatility and diminished outlook for the year 2015. However, that should not impact its value proposition as a sound investment opportunity. In fact, investors will be prudent to consider this as a fortuitous break to pick some of its stock. The firm’s foray into wireless communications is being strengthened by its acquisition of Wes Tower Communications Inc. in October 2014. This should further reassure investors with regards to its future growth prospects.
