Gartner Inc. (NYSE:IT) is a leading provider of market research covering the information technology [IT] industry. It provides more than 10,000 client organizations with competitive analysis reports, industry overviews, market trend data, and product evaluation reports. Its GartnerG2, Gartner Dataquest, and other research services are made available through subscriptions primarily to CIOs and other IT professionals. Gartner also offers technology and management consulting services, and produces a number of conferences, seminars, as well as other events aimed at the technology sector.
If every investor had bought Gartner two years ago, they'd all be richer now. From a low of $8.10 in early 2005, the stock has been on a trajectory that would make any investor smile. It seems there's money in technology. Who would have guessed.
Earnings are the usual driver behind the great performance. In 2005 they were 37 cents a share, then went to 58 cents a share. This year expect 75 cents a share, and in 2008, look for $1.00. Revenues have been ramping right along with earnings. Back in 2004, they were $894 million. This year they should be $1.18 billion and $1.3 billion next year. Analysts are looking for sales to grow by 12% a year, on average, over the next 5 years while earnings should increase by 20.5% a year, on average, in the same time period.
Research is the backbone of Gartner, contributing the majority of revenues and earnings. In the first quarter of this year, the company recorded the highest backlog of business under contract, up 19% over the same period last year. The company hosts Events, where clients pay for the latest updates on technology. In the first quarter, Gartner hosted 12 Events, compared to 6 last year in the first quarter. The Events should produce about $190 million in revenues this year, about $20 million more than last. These higher-margin conferences help boost profitablity.
Here are some other numbers: Current assets are about 60% of current liabilities. Net profit margin is 6.6%, heading for 8.2% next year. Return on equity is expected to be 79.5% (this is not a typo) this year and 52% next year, gradually moving toward 22% over the next 5 years. Price to book is 86. Price to earnings is currently 53. Market Cap is $2.8 billion.
IT is an interesting stock that has performed very well, both in terms of price and earnings growth. There are opportunities for the company to leverage its current employees (more Events), and it's adding more billable consultants for higher-margined services. It's all good. But the price already tells you that. Investors love this stock, and if it continues to deliver the earnings, they'll continue the love. But if it misses one quarter, watch out for the correction. It won't be pretty.
IT 1-yr chart