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3 Fast-Growing Peter Lynch Tech Stocks

These companies are undervalued based on their Peter Lynch value line

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Dec 29, 2021
Summary
  • The Peter Lynch chart is a valuation tool designed by the famous investor.
  • These tech stocks are undervalued based on the Peter Lynch line and are growing quickly.
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One method that famous fund manager Peter Lynch liked to use to search for value opportunities was to look for stocks that were trading below what their price would be if they were to trade with a price-earnings ratio of 15 or their median historical price-earnings ratio.

Ever since he detailed this method in his book “Beating the Street,” value investors have been using it as a tool to find potential investment opportunities. GuruFocus has also built the Peter Lynch chart based on this method, which is included in the summary pages of stocks to provide a quick reference.

However, not every stock trading below the intrinsic value estimates on the Peter Lynch chart is a good investment. As Lynch himself pointed out on many occasions, there is no single metric that can determine whether a stock is a buy. If a company’s business is declining, then its stock might deserve to trade lower.

In this discussion, we will take a look at three fast-growing tech stocks that are trading below the intrinsic values calculated by the Peter Lynch value line in order to determine whether or not they are truly undervalued.

HP

HP Inc. (

HPQ, Financial), or Hewlett-Packard, is a multinational information technology company based in Palo Alto, California. It mainly develops personal computers and printers (including 3-D printers). PCs account for approximately two-thirds of revenue, while printing accounts for the other third.

On Dec. 29, HP traded around $38.09 per share for a market cap of $41.31 billion and a price-earnings ratio of 7.03. According to the Peter Lynch chart, the stock is trading below its fair value:

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In terms of growth, the company has achieved a five-year revenue per share growth rate of 12.20% and a five-year earnings per share without non-recurring items growth rate of 21.10%. Investors should keep in mind that the company split into two separate entities in 2014, so numbers before then are for a much larger company.

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Guru investors in HP include Dodge & Cox, Primecap Management, Pioneer Investments,

Jeremy Grantham (Trades, Portfolio) and Catherine Wood (Trades, Portfolio).

HP made the split into a consumer company, HP Inc., and an enterprise company, Hewlett Packard Enterprise Co. (

HPE, Financial), in order to cut costs and turn around its business following its failure to innovate quickly enough on the cloud business, which cost the company big-time.

It seems the split has served HP well, with the company consistently growing its top and bottom lines and maintaining operating and net margins that are better than 68% of industry peers. Its PC business is the second largest in the world, lagging only Lenovo (

HKSE:00992, Financial), so it should continue to benefit from increasing global adoption of technology. HP’s printing business is also one of the world’s largest.

All in all, it seems like HP isn’t getting enough credit for its growth. Investors may be penalizing it for growing slower than the likes of Apple Inc. (

AAPL, Financial), or because its printing business isn’t flashy, or because there are more competitors in the PC market than there used to be. Regardless, if the company can keep growing, it seems undervalued at current levels.

Jabil

Headquartered in St. Petersburg, Florida, Jabil Inc. (

JBL, Financial) is a provider of design, engineering and manufacturing solutions for companies in a wide variety of industries, including health care, automotive, cloud computing, aerospace and more.

On Dec. 29, Jabil traded around $71.61 per share for a market cap of $10.32 billion and a price-earnings ratio of 14.61. According to the Peter Lynch chart, the stock is trading below its fair value:

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Jabil has recorded a five-year revenue per share growth rate of 16.60% and a five-year earnings per share without non-recurring items growth rate of 17%. The company’s growth has been fairly steady throughout its history and began to accelerate in recent years.

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Gurus with stakes in Jabil include

Chuck Royce (Trades, Portfolio), Primecap Management, Ray Dalio (Trades, Portfolio), Scott Black (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio).

Jabil mainly makes its money as a contract-based electronics manufacturer. It’s a “pick and shovel” type of company, meaning it makes the things that other companies need for the production of their own goods.

As a pick-and-shovel play in the tech sector, Jabil hasn’t disappointed in recent years as its growth has accelerated along with the growth of the broader tech sector. Its presence in the global economy, including exposure to many emerging markets, means there’s plenty of room left for expanding operations.

Jabil has done a great job with staying on top of the latest industry developments and key sources of demand in its industries of operation, which has resulted in the company repeatedly raising its growth forecasts. With the company’s cutting-edge focus and expansion efforts, it could be poised for many years of growth ahead, and there might even be room for multiple expansion.

Kulicke & Soffa Industries

Kulicke & Soffa Industries Inc. (

KLIC, Financial) is a Singapore-based tech company that designs, manufactures and sells capital equipment and tools used to assemble semiconductor devices. It is a global leader in semiconductor packaging and electronic assembly solutions.

On Dec. 29, Kulicke & Soffa traded around $59.54 per share for a market cap of $3.72 billion and a price-earnings ratio of 10.28. According to the Peter Lynch chart, the stock is trading below its fair value:

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On the growth front, Kulicke & Soffa has a five-year revenue per share growth rate of 12.50% and a five-year earnings per share without non-recurring items growth rate of 22%. However, this has largely been skewed by a successful 2021; before that, the company was fairly stagnant.

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The most notable guru investors in the stock are

Baillie Gifford (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and Caxton Associates (Trades, Portfolio).

Kulicke & Soffa is a company that supplies the necessary tools and equipment for semiconductor assembly. It provides solutions for the advanced display, automotive, communications, industrial, consumer and data processing semiconductor industries.

When we consider the rapidly increasing demand for semiconductors in the global market, which has been so fast that existing microchip producers simply can’t expand their operations quickly enough, it becomes clear why Kulicke & Soffa’s business has gotten such a strong boost.

This period of industry expansion is expected to last for years, which should support further growth for the companies that produce the tools necessary for building out semiconductor production capacity. With a financial strength rating of 8 out of 10, Kulicke & Soffa is also better positioned than many competitors to take advantage of demand growth.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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