10-Minute Investment Autopsy No. 13: Gartner
The evidence was already there. No prediction required.
If you haven’t read the guide to the 10-Minute Investment Autopsy series, you can find it here.
The Original Thesis
Who: Jeffrey Ubben
When: January 2006
What: Gartner (ticker: IT)
The Thesis:
Gartner is the leading subscription-based research company focused on the professional IT industry
The company provides mission-critical research for IT executives making purchasing decisions
Renewal rates have been ~ 80%, even in downturns
New CEO, Gene Hall, was hired from ADP and he has been energizing the core research business, which is where Gartner makes all its money
Company bought its number two research competitor and now has 90% market share in research for senior tech executives
Shift to per-seat pricing is going to have a positive impact on revenue and renewal rates
The company is ideally positioned to benefit from pent-up capital spending by corporations
Jeffrey is on the board so he cannot comment specifically on valuation but his firm owned 15%+ of the company at the time he presented the thesis
These are the highlights of Gartner’s then-recent financials up to the point when Jeffrey was presenting his thesis:
This is the stock chart up to the time when Jeffrey presented his thesis:
Pause here. Think through the thesis and the facts and decide what you agree with, what you disagree with and whether you would invest based on the information available.
What Happened (Just the Facts)
Gartner’s financials following Jeffrey’s presentation were as follows:
Over the 2005 to 2010 5-year period:
Sales grew at a 5% annual rate
EBITA grew at a 19% annual rate
EBITA margins expanded from 7% to 13%
EPS grew at a 25% annual rate
Net Debt declined from 176M to 100M
ROIC doubled from 13% to 26%
Gartner shareholders handily beat the market, with the stock increasing at 20%+ per year over the 5-year period, compared to the market at 2%
There is a lot more to the case:
The Autopsy - the reasons for what happened
The Lessons that you can apply to your own investing
Discussion Questions for you to think about and discuss with other thoughtful investors in the weekly case thread