Is Computacenter stock an overlooked gem?

When buying tech stocks, it’s easy to focus on the US market and ignore UK tech stocks. But one British tech company I’m interested in is Computing center (LSE: CCC). Computacenter shares have shed 28% of their value in the past year.

However, as the company’s final results released today, Computacenter is a reliable if not exciting player. But the stock is trading at a price-to-earnings ratio (using pre-tax earnings) of just 10, which I think is cheap. Should I invest?

Ongoing benefits

The company saw a big jump in profits last year, as it rose 28.5% to £6.4 billion.

However, this does not translate into higher profits. Adjusted profit before tax rose 3.2%, while profit before tax rose 0.4%. However, at £249m, pre-tax profit is quite large. Today, Computacenter has a market capitalization of £2.6bn.

The dividend yield in 2018 was 2.4%. This may not be the case, but it is worth noting that the current dividend of 67.9p per share is more than double what it was four years ago. The dividend yield is 3.2%.

Market reaction

The difference between the growth in revenue and profit concerns me, because it shows the risk that Computacenter is stuck in lower margin work than before.

But overall, the performance is very strong. But Computacenter stock has lost a lot in the past year. As I write this on Friday evening, they are up less than 3% in the day’s trading session.

I think Computacenter has some challenges that are driving the stock price.

One is the perception of investors behind the less glamorous technology sector, installing computing networks and helping clients supply cables. In fact, the company offers a wide range of professional services. Their business model doesn’t have the scalability of software like that Microsoftbut it still benefits from the client’s need for technology solutions that include not only hardware but also software and consulting.

Should I buy Computacenter stock?

Another pressure on share prices is the risk of lower profits and earnings as clients rein in spending.

When the pandemic forced staff to work from home, many companies spent heavily on technology setups. With the big spending now behind us and the business environment in many sectors becoming tighter, spending on technology is once again low on the list of executive priorities.

Computacenter struck an optimistic note on its results, but said that “positive about the prospects in the short, medium, and long term“.

To me, it seems like Computacenter stock is worth a lot more than it is now. The company has a large customer base, diversified revenue streams and is consistently profitable. As today’s results demonstrate once again, the business model of operating a broad technology services business in diverse markets has helped to achieve scale and develop deep customer relationships.

If I had the money to invest today, I would be happy to add Computacenter to my portfolio.