GFT Technologies SE (ETR:GFT): Is This Undervalued Growth Stock a Hidden Gem?

In a market increasingly dominated by high-flying tech giants, GFT Technologies SE (ETR:GFT) stands out as a potential undervalued gem. With a P/E ratio of just 13.69—nearly half the software industry's median of 27.12—the company offers a compelling entry point for investors seeking growth at a discount. But does its discounted valuation mask robust growth prospects, or is it a red flag? Let's dissect the numbers and strategic drivers behind this intriguing stock.

Undervalued on Paper: The P/E Discount

GFT's current P/E ratio of 13.69 (as of June 2025) is a stark contrast to the Software - Application sector's average of 46.5. This discount suggests the market is pricing in near-term risks, such as challenges in the UK market and margin pressures from increased investments. However, the company's P/E has historically ranged between 9.3 and 46.63, and its current valuation ranks it better than 82% of software peers, according to industry data.

While P/E ratios can be misleading for cyclical businesses, GFT's five-year average earnings growth of 38.2% (excluding non-recurring items) hints at a company primed for sustained expansion. Analysts highlight that the stock's low P/E may reflect short-term headwinds rather than long-term fundamentals.

Growth: 55% Upside in Earnings—But Where's the Proof?

The claim of a 55% earnings growth projection appears to stem from external analyses suggesting cumulative growth over the next few years, not annualized figures. Official guidance is more tempered:

• 2025 EBIT is projected to dip 12% to €68 million, due to strategic investments in AI and efficiency measures.
• Revenue, however, is expected to rise 7% to €930 million, driven by strong performances in the Americas (+16% to +20%), APAC, and the insurance sector (+24%).

Looking further ahead, the company's five-year strategy targets €1.5 billion in revenue by 2029, implying a CAGR of ~7.5%. While this falls short of the 55% headline, the AI-centric roadmap—including its AI Impact product (now in 440 clients) and robotics sector entry—could catalyze outsized returns in later years.

Cash Flow and Dividends: A Conservative Play

GFT's free cash flow conversion remains a bright spot. Despite a Q1 2025 operating cash flow dip to -€4.31 million, the company has maintained a 14% increase in order backlog, signaling strong demand. Its share buyback program (up to €15 million) and proposed €0.50 dividend per share reflect confidence in long-term cash generation.

The dividend payout ratio, at ~28% of projected 2025 EPS (€1.74), is conservative, leaving room for growth. This contrasts with peers in hyper-growth sectors that often reinvest heavily while offering no dividends. For income-focused investors, GFT's low payout ratio and potential for dividend hikes post-EBIT recovery make it attractive.

Risks: Navigating the Storm Clouds

• UK Market Headwinds: Revenue in the UK fell 20% in 2024, and structural adjustments in Software Solutions GmbH remain unresolved.
• Margin Pressures: Rising social security costs and R&D investments could keep EBIT margins constrained in the near term.
• Sector Volatility: The software industry's average P/E of 46.5 (Software - Application) suggests GFT's valuation could climb if it meets growth targets.

Conclusion: A Buy for Patient Investors

GFT Technologies SE presents a compelling long-term opportunity for investors willing to look past short-term turbulence. Its undervalued P/E, diversified revenue streams (Americas, APAC, and AI), and conservative financial policies offset near-term risks.

Investment Thesis:
- Buy: For investors with a 3–5 year horizon, leveraging the P/E discount and AI-driven growth.
- Hold: If macroeconomic headwinds in Europe persist or EBIT recovery falters.
- Avoid: For short-term traders, given volatility and margin concerns.

While the 55% earnings growth claim may be aspirational, GFT's fundamentals—strong cash flow, strategic investments, and a low valuation—suggest it's a hidden gem worth adding to a diversified portfolio. The key? Patience.