Gartner’s stock price has taken a beating over the past six months, shedding 51.6% of its value and falling to $243.33 per share. This may have investors wondering how to approach the situation.
Is now the time to buy Gartner, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Gartner Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in Gartner. Here are two reasons why you should be careful with IT and a stock we'd rather own.
1. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Gartner’s revenue to rise by 2.9%, a slight deceleration versus its 8.9% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will face some demand challenges.
2. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Gartner’s margin dropped by 3.3 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. Gartner’s free cash flow margin for the trailing 12 months was 23.5%.
Final Judgment
Gartner isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 18.8× forward P/E (or $243.33 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top software and edge computing picks.
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