As the coronavirus crisis continues to cause concern in the U.S., value investors may want to consider looking to other corners of the globe for good opportunities.
On Friday, European markets closed mostly lower on fears related to a spike in Covid-19 cases. The pan-European Stoxx 600 fell 0.39%, while the FTSE 100 posted a 0.20% gain, the Dax lost 0.73% and the CAC 40 slid 0.18%.
While businesses in the U.K. have begun to reopen following the pandemic-related lockdowns, Bloomberg reported earlier this month that a poll found executives and employees alike were reluctant to return to working in the way they did before the pandemic began. Of those polled, 57% said they did not want to return to a normal office environment with normal office hours. As such, investors may find good value among British business services companies that are trading below Peter Lynch value.
Lynch, the renowned investor who managed Fidelity’s Magellan Fund between 1977 and 1990, developed this strategy in order to simplify his stock-picking process. With the belief good, stable companies eventually trade at 15 times their annual earnings, he set the standard at a price-earnings ratio of 15. Stocks trading below this level are often considered good investments since their share prices are likely to appreciate over time, creating value for shareholders. The All-in-One Screener, a Premium GuruFocus feature, also looked for companies with a business predictability rank of at least two out of five stars and a 10-year revenue per share growth rate of at least 6%.
As of June 26, stocks that met these criteria were SThree PLC (LSE:STEM, Financial), Robert Walters PLC (LSE:RWA, Financial), PageGroup PLC (LSE:PAGE, Financial), Hays PLC (LSE:HAS, Financial) and Ricardo PLC (LSE:RCDO, Financial).
SThree
The London-based company, which provides staffing and employment services, has a market cap of 358.73 million British pounds ($442.43 million); its shares closed around 2.7 pounds on Thursday with a price-earnings ratio of 8.74, a price-book ratio of 3.05 and a price-sales ratio of 0.27.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The GuruFocus valuation rank of 10 out of 10 supports this assessment.
SThree’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to having a comfortable level of interest coverage, the high Altman Z-Score of 7.01 indicates the company is in good standing. The return on invested capital is also nearly three times the weighted average cost of capital, implying it has good profitability.
The company is also supported by an expanding operating margin, returns that outperform a majority of its competitors and a moderate Piotroski F-Score of 4, which means business conditions are stable. Driven by consistent earnings and revenue growth, SThree also has a three-star predictability rank. According to GuruFocus, companies with this rank typically return 8.2% annually over a 10-year period.
The Oakmark Intl Small Cap (Trades, Portfolio) Fund has a 3.18% stake in the company.
Robert Walters
The British company, which provides professional recruitment consultancy services for a variety of industries around the world, has a market cap of 305.79 million pounds; its shares closed around 4.02 pounds on Thursday with a price-earnings ratio of 8.96, a price-book ratio of 1.86 and a price-sales ratio of 0.23.
According to the Peter Lynch chart, the stock is undervalued. The valuation rank of 10 out of 10 also supports undervaluation.
GuruFocus rated Robert Walters’ financial strength 7 out of 10 on the back of adequate interest coverage and a robust Altman Z-Score of 4.87. The ROIC is also higher than the WACC, supporting good profitability.
The company’s profitability scored an 8 out of 10 rating, driven by operating margin expansion, strong returns that outperform over half of its industry peers and a moderate Piotroski F-Score of 5. Although revenue per share growth has slowed down over the past 12 months, Robert Walters still has a 4.5-star predictability rank. GuruFocus says companies with this rank typically return an average of 10.6% per year.
No gurus currently own the stock.
PageGroup
The U.K.-based recruitment company has a market cap of 1.25 billion pounds; its shares closed at 3.81 pounds on Thursday with a price-earnings ratio of 11.83, a price-book ratio of 3.76 and a price-sales ratio of 0.74.
Based on the Peter Lynch chart, the stock appears to be undervalued. The valuation rank of 9 out of 10 also leans toward undervaluation.
PageGroup’s financial strength was rated 7 out of 10 by GuruFocus. In addition to comfortable interest coverage, the company is being supported by a high Altman Z-Score of 5.96. It also has good profitability based on the ROIC outweighing the WACC, though it may be becoming less efficient since the company’s assets are building up at a faster rate than revenue is growing.
The company’s profitability fared even better, scoring a 9 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and consistent revenue growth. PageGroup’s Piotroski F-Score of 3 is low, however, suggesting its business conditions are in poor shape. It also has a 4.5-star predictability rank.
Oakmark has a 1.49% stake in the company.
Hays
Headquartered in London, the company, which provides recruitment and human resources services in 33 countries, has a market cap of 1.96 billion pounds; its shares closed at 1.17 pounds on Thursday with a price-earnings ratio of 12.04, a price-book ratio of 2.76 and a price-sales ratio of 0.28.
The Peter Lynch chart suggests the stock is undervalued, as does the valuation rank of 9 out of 10.
GuruFocus rated Hays’ financial strength 7 out of 10, driven by comfortable interest coverage and a robust Altman Z-Score of 6.54. The ROIC is also three times the WACC, indicating good profitability.
The company’s profitability scored an 8 out of 10 rating. Although its margins are underperforming industry peers, its returns beat over half of them. Hays also has a moderate Piotroski F-Score of 5 and a four-star predictability rank, which is on watch as a result of a slowdown in revenue per share growth over the past year. GuruFocus data shows companies with this rank typically return an average of 9.8% annually.
While Oakmark is the company’s largest guru shareholder with 0.64% of outstanding shares, the Invesco European Growth Fund (Trades, Portfolio) is not far behind.
Ricardo
The British environmental consulting services company has a market cap of 206.68 million pounds; its shares closed at 3.87 pounds on Thursday with a price-earnings ratio of 11.4, a price-book ratio of 1.27 and a price-sales ratio of 0.53.
According to the Peter Lynch chart, the stock is undervalued, which is an analysis the valuation rank of 9 out of 10 aligns with.
Ricardo’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately 24.3 million pounds in new long-term debt, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 2.83, however, suggests it is under some pressure since its assets are building up at a faster rate than revenue is growing.
The company’s profitability fared better with a 9 out of 10 rating. Despite having declining margins, Ricardo’s returns outperform over half of its competitors. It is also supported by a high Piotroski F-Score of 7, which indicates operations are healthy, and a four-star predictability rank.
No gurus currently own the stock.
Disclosure: No positions.
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