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4 European Tech Companies to Consider

GuruFocus.com

- By Sydnee Gatewood

As the seemingly endless trade war between the China and U.S. trudges on, investors are looking to other markets for solid value investment ideas.

On Wednesday, CNBC reported that European markets closed higher in anticipation of the conclusion of the Federal Reserve's monthly meeting. While the central bank later announced it increased the federal funds rate from 2% to 2.25%, the European indexes posted gains on Thursday as well. As a result, some good opportunities may be found among European companies trading below their Peter Lynch values.


Lynch, a renowned value investor, devised this method as a way of speeding up his research process. By comparing a company's stock price over time to its annual earnings, setting the standard at a price-earnings ratio of 15, he could determine if it was a good investment since he believed good, stable companies eventually trade at 15 times their annual earnings. These companies also exhibit good earnings and revenue growth as well as predictability.

Four European tech companies that meet these criteria are Asseco Poland SA (ACP), Keyrus (KEY.PA), Micro Focus International PLC (MCRO.L) and Solid State PLC (SOLI.L).

Asseco Poland

The Polish software company has a market cap of 3.86 billion zloty ($1.05 billion); its shares closed at 46.5 zloty on Wednesday with a price-earnings ratio of 8.13, a price-book ratio of 0.69 and a price-sales ratio of 0.72.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.

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GuruFocus rated Asseco's financial strength 6 out of 10. Although the company has issued approximately 647 million zloty in new long-term debt over the last three years, it is at a manageable level as a result of sufficient interest coverage. The Altman Z-Score of 1.34, however, indicates the company is at risk of going bankrupt.

The company's profitability and growth scored a 7 out of 10 rating, boosted by strong margins and returns. The company also has a high Piotroski F-Score of 7, implying business conditions are good, and a business predictability rank of 2.5 out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 7.3% per year. The rank is on watch, however, since Asseco has recorded a decline in revenue per share over the last three years.

No gurus currently have positions in the stock.

Keyrus

The French information technology services company has a market cap of 88.49 million euros ($103.5 million); its shares closed at 5.6 euros on Wednesday with a price-earnings ratio of 12.45, a price-book ratio of 1.78 and a price-sales ratio of 0.34.

According to the Peter Lynch chart, the stock is undervalued.

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Keyrus' financial strength was rated 6 out of 10 by GuruFocus. While the company has issued approximately 6.58 million euros in new long-term debt over the last three years, it is at a manageable level as the interest coverage is sufficient. The Altman Z-Score of 1.77, however, indicates the company is in danger of bankruptcy.

The company's profitability and growth fared a bit better, scoring an 8 out of 10 rating as a result of an expanding operating margin, a high Piotroski F-Score of 7 and a 4.5-star business predictability rank. In addition to having consistent earnings and revenue growth, GuruFocus says companies with this rank typically see their stock prices gain an average of 10.6% per year.

The company currently has no guru investors.

Micro Focus

The British software and IT company has a market cap of 5.78 billion pounds ($7.59 billion); its shares closed at 13.63 pounds on Wednesday with a price-earnings ratio of 11.07, a price-book ratio of 1.03 and a price-sales ratio of 2.74.

Based on the Peter Lynch chart below, the stock appears to be undervalued.

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Weighed down by poor interest coverage, GuruFocus rated Micro Focus' financial strength 5 out of 10. In addition, the Altman Z-Score of 2.11 indicates the company is under minor fiscal pressure.

The company's profitability and growth scored a 9 out of 10 rating. While its net margin and operating margin have been declining in recent years, they still outperform a majority of competitors. The company also has a moderate Piotroski F-Score of 5, suggesting conditions are stable, and a 4.5-star business predictability rank, which is on watch. According to GuruFocus, while Micro Focus has good earnings and revenue growth, its assets are building at a faster rate, suggesting the company is becoming less efficient.

The Causeway International Value (Trades, Portfolio) Fund and the Invesco European Growth Fund (Trades, Portfolio) both have positions in the stock.

Solid State

The U.K.-based manufacturer of electronic components has a market cap of 27.53 million euros; its shares closed at 3.24 euros on Wednesday with a price-earnings ratio of 12.46, a price-book ratio of 1.52 and a price-sales ratio of 0.60.

The Peter Lynch chart suggests the stock is undervalued.

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Supported by a comfortable level of interest coverage and a high Altman Z-Score of 5.45, Solid State's financial strength was rated 8 out of 10 by GuruFocus.

The company's profitability and growth scored a 7 out of 10 rating. Although the operating margin has declined in recent years, it still outperforms 54% of competitors. The company also has a moderate Piotroski F-Score of 6 and a two-star business predictability rank. GuruFocus says companies with this rank typically see their stock prices gain an average of 6% per year. Despite having good earnings and revenue growth, the rank is on watch since Solid State's assets are building at a faster rate than its revenue. This suggests the company is becoming less efficient.

There are no gurus currently invested in the stock.

Disclosure: No positions.

This article first appeared on GuruFocus.