Cash Machine Trading Cheap – Gartner Stock Set to Run?
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.
The stock is available at a significant discount to its 3-month, 1-year, and 2-year highs.
IT Has Strong Fundamentals
- Cash Yield: Gartner offers an impressive cash flow yield of 10.7%.
- 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 36% below its 3-month high, 66% below its 1-year high, and 72% below its 2-year high.
Below is a quick comparison of IT fundamentals with S&P medians.
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| IT | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | IT Consulting & Other Services | – |
| Free Cash Flow Yield | 10.7% | 4.3% |
| Revenue Growth LTM | 3.7% | 6.8% |
| Operating Margin LTM | 18.1% | 18.6% |
| PS Ratio | 1.7 | 3.2 |
| PE Ratio | 15.1 | 24.3 |
| Discount vs 3-Month High | -35.7% | -9.3% |
| Discount vs 1-Year High | -66.1% | -12.2% |
| Discount vs 2-Year High | -72.4% | -14.0% |
*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:
These stocks have positive revenue growth, high free cash flow yield, and are trading at a 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 resulted in average 6-month and 12-month forward returns of 25.7% and 57.9% respectively, with win rate (percentage of picks returning positive) of above 70%.
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