Gartner Stock: Strong Cash Flow Poised for a Re-Rating?
We think Gartner (IT) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.
What Is Happening With IT
IT stock is available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to conservative 2026 revenue and margin guidance, following Q2 and Q4 2025 contract value growth slowdowns. Macroeconomic uncertainties and extended client buying cycles also impacted recent performance.
The stock may not reflect it yet, but here is what’s going well for the company: while 2026 revenue growth is modest at 2% FX-neutral, Gartner expects contract value to accelerate, supported by AI-powered tools enhancing client engagement and retention. Robust 2025 free cash flow of $1.2 billion and its investment-grade bond issuance demonstrate financial strength. This underlying stability, despite the cautious outlook, factors into the current valuation discount.
IT Has Strong Fundamentals
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- Cash Yield: Gartner offers an impressive cash flow yield of 10.9%.
- Growing: Revenue growth of 3.7% over the last twelve months is not that great, but your cash pile is likely to grow.
- Valuation Discount: IT stock is currently trading at 41% below its 3-month high, 67% below its 1-year high, and 73% below its 2-year high.
Below is a quick comparison of IT fundamentals with S&P medians.
| IT | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | IT Consulting & Other Services | – |
| Free Cash Flow Yield | 10.9% | 4.3% |
| Revenue Growth LTM | 3.7% | 6.7% |
| Operating Margin LTM | 18.1% | 18.6% |
| PS Ratio | 1.7 | 3.2 |
| PE Ratio | 14.8 | 23.8 |
| Discount vs 3-Month High | -41.0% | -12.5% |
| Discount vs 1-Year High | -66.6% | -15.1% |
| Discount vs 2-Year High | -72.8% | -16.9% |
*LTM: Last Twelve Months
But What About The Risk Involved?
While IT stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. Tech stocks took some serious hits in past crashes. During the Dot-Com Bubble, the drop was over 75%. The Global Financial Crisis saw a 70% plunge, and the Covid pandemic dragged prices down nearly 50%. Even the smaller shocks weren’t kind: the 2018 correction knocked about 26%, and the inflation shock sliced around 34%. Strong fundamentals matter, but when the market turns sour, big dips are hard to avoid. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read IT Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
If you want to see more details, read Buy or Sell IT Stock.
Other Stocks Like IT
Not ready to act on IT? You could consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Positive revenue growth
- High free cash flow yield
- Meaningful discount to 3M, 1Y, and 2Y highs
A portfolio that was built starting 12/31/2016 with stocks that fulfill the criteria above would have performed as follows:
- Average 6-month and 12-month forward returns of 25.7% and 57.9% respectively
- Win rate (percentage of picks returning positive) of >70% for both 6-month and 12-month periods
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