The Dutch building company BAM, is it a definite buy? Let's take a look at the pros-side of BAM. If you read the advice written by investment banks, they'll almost all tell you to buy BAM because of the recovering global construction market. You might even call this market booming nowadays. Yet, this does not mean you should pick the BAM stock per se, as a recovering global construction market is no reason to expect BAM outperforming this particular market and competitors.So what else makes BAM interesting? BAM is getting more and more orders for large projects. What's more important, is that these projects are well diversified across countries all over the globe. Consequently, they are less vulnerable to changes in regulation by (local) governments. What's even more striking is the fact that BAM manages to avoid regions of the world where there is a lot of economic uncertainty nowadays. They avoid South-America, where countries such as Brazil and Argentina are experiencing big economic troubles and China, where we saw a bubble deflating recently. However, they do have projects in Indonesia and India, which have a high correlation to the Chinese market, so some restraint should be taken here.
Also, BAM has taken a massive hit during the crisis of 2007-2008, losing 90% of its value compared to 2012. This is now proving to be an opportunity as BAM was forced to restructure the company. Today, BAM is harvesting the benefits of this restructuring and is also expected to do so in the nearby future (the restructuring is still going on).
Of course, there are also cons as to why BAM might not prove a too successful investment. First, the stock has risen to €4.94 today from €1.82 in September 2014. So one might wonder how much the stock price can still rise after this massive incline this year. Second, even though project orders are rolling in, the margins on projects remain not too overwhelming. Which means that surprise costs can seriously harm profits for BAM.
In conclusion, we do not think BAM is a definite buy due to the posed risks of this stock, but we like to mention the upward potential of this stock. So if you like to take a little risk, BAM might be a nice addition to your portfolio.
