Based on my research, I think Computacenter (LSE:CCC) is an FTSE 250 investment worth considering. Offering a range of IT services at a time of heightened technology demand could mean the company maintains good growth over the next decade.
Additionally, I think the investment offers great value for money. Technology companies usually have valuations that are much higher than Computacenter’s. So, I expect the investment to have less price volatility in the case of the company’s business results being lower than the consensus of analysts’ expectations.
Assessing Computacenter’s long-term strategy
The company’s management has a business model that is summarised in three core tenets:
- Sourcing the most effective technology
- Offering IT strategy and advisory services
- Offering IT and technology management
This places Computacenter in an interesting position, where it is essentially a comprehensive technology consulting firm. While I think these companies can be good, they tend to have less of a business moat than firms that develop hardware or are involved in manufacturing.
In many respects, it’s much easier to consult than it is to engineer and manufacture. That means what Computacenter offers can be replicated by competitors a bit easier than I’d like.
However, that doesn’t undermine the value the firm has in the technology industry. Computacenter has revenue coming from all around the world and dominant operations in the US, Germany, the UK, and France. I have to admire how large and well-respected this company has become. Today, it has a market cap of around £2.85bn.
Slower growth but better value
I have to admit, while Computacenter has shown good long-term growth historically, it hasn’t been excellent. But that’s less concerning to me when I take a closer look at the valuation, which I mentioned above.
You see, leading technology companies like Amazon and Salesforce are going to have high growth, but the valuations of these firms are also going to be extremely high. The danger is that there is going to be more share price volatility if the business results don’t go as expected.
What I like about Computacenter shares is that its slower growth comes with potentially more stability in the share price. That makes it easier to sleep well at night while holding the investment in my portfolio.
For comparison, Amazon has a price-to-earnings ratio of around 60, and Computacenter has a price-to-earnings ratio of around just 14.5.
Will I invest in the firm?
Readers should understand that when I say slower growth, I mean compared to the biggest and best technology companies in the world. Computacenter shares have still outperformed most other stocks over the past decade. In fact, its compound annual growth rate in share price has been 13% over the time period. That’s very good, considering 10% compound growth annually is often considered the market average for the US.
Also, the firm pays a generous dividend, yielding almost 3% every year at the moment.
But one area that could be slightly stronger is the balance sheet. The company carries a lot of liabilities compared to assets. That means it might find itself slightly more vulnerable in times of economic recession.
However, all in all, I really like this company. It’s not on my watchlist right now because I have a lot of other companies I want to invest in first. But I think it deserves a lot of respect.
