Editor’s note: This article was first published in November 2013; Sacyr’s share price of close to €4, its 12-month performance among the best IBEX stocks, its fall in those days and its debt and sector situation all refer to late 2013. This November 2013 view is kept as a historical record. It is not investment advice.
After Sacyr’s plunge over the last few days and the extremely volatile behaviour of this “chicharro” of the benchmark index (Spanish market slang for a highly speculative stock), many analysts are trying to explain these falls, as if they were looking for a hidden motive or some kind of information held by a select few investors.
Some point to the rise in short positions in the stock and others to knock-on problems from Repsol, while others insist it is simply a technical correction from the overbought levels the stock is showing.
For us the explanation is much simpler: at these levels, the smart money leaves and only the dumb money comes in. Sacyr is one of those companies that you either buy very cheap or simply don’t buy. Once again, if you wanted to buy Sacyr, you should have done it when people were advising you against it.
It has been one of the best-performing stocks in the IBEX over the last 12 months. Some technical analysts say that when a stock is this bullish, it can correct by 50% and still be in an uptrend. With all due respect, if a stock falls 50% in a few sessions for no apparent reason, it is not a bullish stock but a chicharro you can speculate on, not invest in.
Conclusion: Sacyr is an indebted company with huge swings in its share price and dizzying cumulative gains, and at these levels it is not a stock that an investor who values their money should be buying.
It is not that we lack a margin of safety at these levels; it is that we have no safety at all, neither with its high debt nor with its sector at the moment. I would look for an explanation of why this stock trades at close to €4 rather than of why it is falling.
See also: Market outlook: more dangers than opportunities
Featured image: Luis García, CC BY-SA 3.0, via Wikimedia Commons.
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