In today's trading, Gartner Inc (IT, Financial) experienced a slight loss of -1.27%, following a modest 3-month gain of 1.28%. Despite these fluctuations, Gartner's Earnings Per Share (EPS) remains an impressive 11.54. This article aims to explore whether Gartner (IT) is fairly valued and provides an in-depth analysis of the company's financial health and prospects. Read on to understand Gartner's intrinsic value better.
Understanding Gartner Inc (IT, Financial)
Based in Stamford, Conn., Gartner Inc (IT) is a leading provider of independent research and analysis on information technology and related industries. Its insightful reports, briefings, and updates are delivered straight to clients' desktops. Gartner's clientele primarily consists of chief information officers and other business executives responsible for planning companies' IT budgets. In addition to its research services, Gartner also offers consulting services and hosts numerous IT conferences globally.
With a market cap of $27.20 billion and sales of $5.70 billion, Gartner's current stock price stands at $344.76 per share. This price is compared to its Fair Value (GF Value) of $359.51, indicating that the stock may be fairly valued. To better understand this valuation, let's delve deeper into the company's finances and operations.
Deciphering the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade.
According to the GF Value, Gartner (IT, Financial) appears fairly valued. This assessment is based on historical multiples, internal adjustments based on past business growth, and future performance estimates. If the share price significantly surpasses the GF Value Line, the stock may be overpriced, indicating poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued, suggesting higher future returns. Given Gartner's current share price of $344.76, the stock seems fairly valued.
As Gartner is fairly valued, the long-term return of its stock is likely to align with its business growth rate.
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Evaluating Gartner's Financial Strength
Investing in companies with weak financial strength can lead to permanent capital loss. Therefore, it's crucial to assess a company's financial strength before purchasing its shares. Key indicators such as the cash-to-debt ratio and interest coverage can provide a good initial perspective. Gartner has a cash-to-debt ratio of 0.39, ranking it lower than 78.92% of 2752 companies in the Software industry. Based on this, GuruFocus ranks Gartner's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth: A Closer Look
Investing in profitable companies, especially those with consistent profitability over the long term, typically poses less risk. A company with high profit margins is also generally a safer investment than one with low profit margins. Gartner has been profitable for 10 out of the past 10 years. Over the past twelve months, the company reported a revenue of $5.70 billion and Earnings Per Share (EPS) of $11.54. Its operating margin is 19.99%, which ranks better than 89.01% of 2785 companies in the Software industry. Overall, GuruFocus ranks Gartner's profitability at 9 out of 10, indicating strong profitability.
Growth is one of the most important factors in a company's valuation. Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Gartner's average annual revenue growth is 13.1%, ranking it higher than 61.72% of 2414 companies in the Software industry. The 3-year average EBITDA growth is 36.8%, ranking it better than 82.56% of 2007 companies in the Software industry.
ROIC vs WACC: A Profitability Indicator
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess its profitability. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Gartner's ROIC is 12.86, and its WACC is 10.39.
Conclusion
In summary, 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 82.56% of 2007 companies in the Software industry. For a more detailed understanding of Gartner's financial performance over the years, check out its 30-Year Financials here.
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