Why has this stock slumped by 12% today?

Updated: 
GB Group

Shares in identity data intelligence specialist GB Group(LSE: GBG) have fallen by over 12% today following the release of its half-year results. Could this prove to be a buying opportunity, or should you avoid GB Group?

GB Group's performance in the first half of the year has been robust. It has reported a 16% rise in revenue versus the same period of the prior year. Organic growth was 9% and would have been higher but for the roll-out of the GOV.UK Verify project across central government departments being slower than originally forecast.

In term of profitability, GB Group expects to report performance for the first half of the year which is in line with expectations. It anticipates an operating profit of at least £5m, which would represent an increase of 11% over last year. Furthermore, the market opportunities for GB Group's identity data intelligence products remain sound. GB Group is well-positioned to take advantage of them.

Despite this positive update, shares in GB Group have slumped today. This could be because of profit-taking, or because of fears surrounding a change in management or potential weakness in the company's markets.

Looking ahead, GB Group is forecast to record a fall in earnings of 9% in the current year, followed by a rise of 20% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.4, which indicates that it offers significant upside from its current price level. In addition, GB Group offers improving geographic diversity and the integration of IDscan Biometrics has progressed well thus far. This shows that it has excellent growth prospects beyond next year and is worth buying.

Go for stability?

However, investors seeking a larger and more stable technology company may wish to look elsewhere. As has been shown today, GB Group's shares can be relatively volatile. As such, global software specialist Micro Focus(LSE: MCRO) could prove to be a logical buy for the long term.

Micro Focus is forecast to grow its bottom line by 6% in the next financial year. While this is a slower rate than for GB Group, Micro Focus offers significant growth potential from the integration of HP Enterprise. This should lead to significant synergies that may boost the Micro Focus bottom line. It will also mean that Micro Focus is a larger and more stable company that has a much lower risk profile than that of GB Group.

Clearly, Micro Focus is more expensive than GB Group. It has a PEG ratio of 2.7, which is almost twice that of GB. However, for long-term investors seeking reduced risk, Micro Focus has huge appeal. And with it yielding 2.6% from a dividend covered 2.3 times by profit, it has excellent income prospects too. They compare favourably to those of GB Group, which yields 0.8% from a dividend covered 4.4 times by profit.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Micro Focus. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.