* No tech bubble seen in Europe since fewer big web firms
* 180 U.S. stocks trade at more than 30x expected earnings
* Fund managers forced to dump sector globally
By Blaise Robinson
PARIS, April 25 European technology stocks are
ripe for a rebound as investors look for bargains following a
sharp sell-off in pricey U.S. tech and internet firms that
spilled over into Europe and Asia.
Fund managers are starting to look at European tech companies
such as Germany's SAP and Sweden's Ericsson
, which slipped alongside Wall Street peers despite
much cheaper valuation levels.
Fears that sky-high valuations for Internet companies like
Facebook and Netflix were overdone prompted a 10
percent fall between early March and mid-April in New York's
tech-heavy Nasdaq Composite index.
While the correction on Nasdaq's so-called 'momentum stocks'
might not be over, analysts see good buying opportunities in
Europe, where the tech sector now trades at a cheaper valuation
ratio than other major sectors. These include chemicals,
construction and materials, industrials and travel and leisure.
"The Nasdaq was more than due for a correction. It traded at
a price-to-earnings ratio of about 30. The S&P in comparison,
trades at 17 times earnings, and I'm not even talking about
Europe," said Arnaud Scarpaci, fund manager at Montaigne Capital
"People quickly pulled the trigger and there was not much
discrimination between very expensive names in the U.S. and
fairly priced European techs."
Europe is home to fewer large listed technology companies
than the United States and does not have major publicly traded
consumer Internet companies in social media or online retail.
Its tech index includes names like fallen mobile phone maker
Nokia, which recently closed the sale of its handset
division to Microsoft, chip maker STMicroelectronics
, and telecom gear maker Alcatel-Lucent.
Even after the recent correction, nearly 180 stocks listed
on the Nasdaq trade at more than 30 times expected earnings in
2015. In contrast, European tech stocks trade at an average
price-to-earnings ratio (P/E) of 16.7 for expected profits in
2015, according to Thomson Reuters data.
Video: Why we're not in tech bubble 2.0 - Silicon Roundabout
Chart: Europe's most expensive tech stocks
Chart: Most expensive U.S. tech stocks
Among the big U.S. momentum stocks, social media group
Facebook trades at a 2015 P/E of 33, e-commerce giant Amazon
at 80 and streaming video subscription service provider
Netflix at 51.
The most expensive European tech stock is British chipmaker
ARM, trading at 32 times 2015 earnings, while big names
such as SAP, Ericsson and ASML trade at 15.4, 13.6 and
15.7 times their projected earnings for 2015.
The huge gap between U.S. and European tech stock prices is
also visible in other valuation ratios such as price-to-book and
While Facebook trades at a price-to-sales ratio of 19.8 and
Twitter at 39.73, ASML trades at 5.2 times sales, SAP
at 4.2 times and Alcatel-Lucent at 0.6 times.
The STOXX Europe 600 technology sector index has
nevertheless tumbled 7 percent during the Nasdaq-led selloff,
twice as much as the overall European market, and almost as much
as the Nasdaq's 9.8 percent slide.
"A number of European tech stocks have been excessively hit
in the sell-off, and this is now an opportunity for stock
pickers to have a good look at each company's fundamentals and
look for value on a stock-by-stock basis," said Jeanne
Asseraf-Bitton, head of global cross-asset research at Lyxor
Asset Management, which has $110 billion euros under management.
Wall Street's fall was accelerated by the record level of
equity leverage used by hedge funds, with margin debt - equities
bought with borrowed money - on the NYSE market totalling around
$465 billion at the end of February.
The pull-back quickly morphed into a full-blown correction
as investors faced with paying back the debt on top of taking a
loss scrambled to sell positions on momentum stocks, with a
ripple effect on tech stocks globally.
"The drop in European tech shares was mostly part of a
knee-jerk reaction hitting all tech stocks around the world. In
the 'risk-off' move, managers of global tech funds were faced
with redemptions, and they had to sell names across the board
regardless of valuation levels," said Roland Kaloyan, head of
European equity strategy at Societe Generale.
"There had been no such thing as a bubble in the European
tech sector, and there's just no big internet names in the
region, which makes a big difference between the two markets.
The U.S. and European tech sectors are very different by
(Charts by Vikram Subhedar; Editing by Catherine Evans)