On September 22, 2023, Gartner Inc (IT, Financial) recorded a daily gain of 2.02%, contributing to a 3-month gain of 2.92%. The company's Earnings Per Share (EPS) stood at 11.54. But does this performance justify its current valuation? Let's delve into a comprehensive analysis of Gartner's intrinsic value.
Company Overview
Headquartered in Stamford, Conn., Gartner Inc (IT, Financial) is a leading provider of independent research and analysis on information technology and other related technology industries. Gartner's research is primarily delivered to clients in the form of reports, briefings, and updates. The company's clientele mainly consists of chief information officers and other business executives who help plan companies' IT budgets. In addition to its research services, Gartner also offers consulting services and hosts IT conferences globally.
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, the stock is likely overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return is likely to be higher.
Valuation Analysis
According to GuruFocus Value calculation, Gartner (IT, Financial) appears to be fairly valued. The stock's current price is $356.26 per share, with a market cap of $28.10 billion. This suggests that the stock is trading close to our estimate of its fair value. As Gartner is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review a company's financial strength before deciding to invest in its stock. Gartner's cash-to-debt ratio is 0.39, which is lower than 79.03% of 2752 companies in the Software industry. GuruFocus ranks Gartner's overall financial strength at 6 out of 10, indicating that its financial strength is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially if the company has demonstrated consistent profitability over the long term. Gartner has been profitable 10 years over the past 10 years and reported revenues of $5.70 billion and Earnings Per Share (EPS) of $11.54 in the past 12 months. Its operating margin of 19.99% is better than 89.02% of 2787 companies in the Software industry. GuruFocus ranks Gartner's profitability as strong.
The long-term stock performance of a company is closely correlated with growth. Faster-growing companies create more value for shareholders, especially if that growth is profitable. Gartner's average annual revenue growth is 13.1%, which is better than 61.75% of 2413 companies in the Software industry. The company's 3-year average EBITDA growth is 36.8%, which is better than 82.61% of 2007 companies in the Software industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) is another way to assess its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Gartner's ROIC is 12.86, and its WACC is 10.25.
Conclusion
In summary, the stock of Gartner (IT, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 82.61% of 2007 companies in the Software industry. To learn more about Gartner stock, you can check out its 30-Year Financials here.
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