Photo Illustration by Jaque Silva/NurPhoto via Getty Images
NurPhoto via Getty Images
Here is our perspective on why Gartner (IT) stock deserves attention: It is expanding, generating cash, and is currently priced at a considerable valuation discount. Let’s examine the figures.
- Cash Yield: Gartner presents an impressive cash flow yield of 7.6%.
- Growing: A revenue growth of 5.9% over the last 12 months indicates that the cash reserves are likely to increase.
- Valuation Discount: IT stock is presently trading at 34% less than its 3-month high, 52% lower than its 1-year high, and 52% below its 2-year high.
Free Cash Flow Yield is defined as free cash flow per share divided by stock price. Why is this significant? If a company generates a substantial amount of cash per share, it can be utilized to fuel further revenue growth, or simply disbursed through dividends or buybacks to shareholders. For a brief overview, Gartner offers research, conferences for professional development and networking, as well as consulting services that include market research, custom analysis, and support services.
Investing in a single stock can involve risks, but there is considerable value in a wider diversified strategy. If you are looking for potential gains with lower volatility than that of holding a single stock, consider the High Quality Portfolio (HQ) – HQ has surpassed its benchmark – a mixture of the S&P 500, Russell, and S&P midcap index, achieving returns that have exceeded 105% since its inception. Effective risk management is crucial – consider the potential long-term performance of a portfolio blended with 10% commodities, 10% gold, and 2% crypto alongside HQ’s performance metrics.
Comparison with S&P500 Median
Trefis
But do these statistics present the complete picture? Read Buy or Sell IT Stock to find out if Gartner still possesses an advantage that withstands scrutiny.
The Point? The Market Can Notice, And Reward
The following statistics are derived from the “high FCF yield at growth and discount” selection strategy since 12/31/2016. The stats are calculated based on selections made monthly, assuming that a stock, once selected, cannot be chosen again for the next 180 days.
- Average forward returns for 6-month and 12-month periods are 25.7% and 57.9% respectively
- Win rate (the proportion of picks yielding positive returns) of over 70% for both the 6-month and 12-month periods
But Consider The Risk
That being said, IT stocks are not shielded from significant declines. They dropped 75% during the Dot-Com bubble and over 70% during the Global Financial Crisis. The corrections in 2018 and the inflation shock were not as severe but still exhibited declines of around 26% and 34%. Even the Covid sell-off came with nearly a 50% drop. Strong fundamentals provide some buffer, but when the market shifts, sharp declines are part of the landscape.
However, the risk extends beyond significant market crashes. Stocks can decline even in favorable market conditions – consider events like earnings releases, business updates, and outlook revisions. Read IT Dip Buyer Analyses to explore how the stock has rebounded from sharp declines in the past.
Consistently selecting winners is a challenging endeavor – particularly due to the volatility associated with individual stocks. Instead, the Trefis High Quality (HQ) Portfolio, comprised of 30 stocks, has demonstrated a history of significantly outperforming the S&P 500 over the last four years. What accounts for this? As a group, HQ Portfolio stocks have yielded superior returns with lower risk in comparison to the benchmark index; experiencing a steadier ride, as seen in HQ Portfolio performance metrics.
