According to the All-in-One Screener, a Premium feature of GuruFocus, three European stocks with good business quality and still trade at attractive GF Valuations despite doubling in value over the past 12 months are Betsson AB (OSTO:BETS B), Fenix Outdoor International Ltd. (OSTO:FOI B) and Synergie SE (XPAR:SDG, Financial).
GuruFocus extends "Modified Buffett Indicator" to Global Market Valuation pages
Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) said that the ratio of market cap to gross domestic product is "probably the best single measure of where valuations stand at any given moment."
GuruFocus launched in December 2020 a modified Buffett Indicator that considers the ratio of total market cap to the sum of gross domestic product and the total assets of the Federal Reserve. Both the gross domestic product and the total assets of the central bank may influence the total market cap according to our research.
As of Tuesday, the modified Buffett Indicator for the U.S. market stands at 142.8%, implying a return of -1.2% per year assuming a reversion to the 20-year median market valuation level.
The website extended in February the "modified Buffett Indicator" concept to the Global Market Valuation pages. For each country, the ratio considers the total market cap divided by the ratio of the sum of the country's gross domestic product and the total assets of the country's central bank.
Figure 1 illustrates the total market cap to gross domestic product for the French stock market.
Figure 1
The French stock market is overvalued based on the original market indicator, with a ratio of total market cap to gross domestic product standing at 117.56% as of Tuesday. Adjusting for the total assets of the French central bank, the modified Buffett Indicator for France signals a fairly valued stock market: The current market level of 65.97% falls slightly at the midpoint of the 20-year minimum level of 36.91% and the 20-year maximum level of 97.87%.
Based on the modified valuation method, France's stock market is expected to return 1.3% per year, compared to the implied return of -3% using the original valuation method. Figure 2 illustrates the predicted and actual returns of the French stock market over the past 20 years.
Based on the Global Market Valuation pages, the modified Buffett Indicator suggests positive returns for several other European markets, including Spain, Italy, Belgium and Germany.
As such, investors may find opportunities in European stocks that have doubled in value over the past year yet are still trading at fair GF Value. GuruFocus' exclusive valuation method builds on Peter Lynch's concept of finding undervalued stocks based on an earnings line by considering three factors: historical price multiples, adjustments for past performance and future business growth.
The Screener identified three European companies with a financial strength rank of at least 6, a profitability rank of at least 7, a business predictability rank of at least four stars, a 12-month total return of at least 100% and a price-to-GF-Value between 0.6 and 0.9, indicating a margin of safety of between 10% to 40%.
Betsson
Shares of Betsson (OSTO:BETS B) traded around 74.75 Swedish krona ($8.70) on Tuesday, approximately 11% below its GF Value of 83.78 Swedish krona.
GuruFocus ranks the Swedish online gaming company's profitability 9 out of 10 on several positive investing signs, which include a four-star business predictability rank and profit margins and returns outperforming over 91% of global travel and leisure competitors.
Fenix
Shares of Fenix (OSTO:FOI B) traded around 1,118 krona ($130.03) on Tuesday, approximately 22% below its GF Value of 1,433.36 krona ($166.71).
GuruFocus ranks the Swedish outdoor leisure company's profitability 9 out of 10 on several positive investing signs, which include returns outperforming over 87% of global competitors and operating margins that have increased approximately 10.40% per year on average over the past five years.
Synergie
Shares of Synergie (XPAR:SDG, Financial) traded around 30.65 euros ($36.32) on Tuesday, approximately 36% below its GF Value of 47.70 euros.
GuruFocus ranks the French human resource management company's profitability 8 out of 10 on the back of a 4.5-star business predictability rank and a return on assets that outperforms approximately 63% of global competitors.
Disclosure: No positions.
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