Gartner (NYSE:IT) is among the world’s largest consulting, research and advisory companies helping businesses leverage new technologies. As a go-to resource for large businesses and government organizations, Gartner has spent nearly 50 years building up its massive consulting business.
Over the last year, however, the stock has been somewhat stagnant, rising less than 2% on a trailing 12-month basis. Is Gartner a safe stock to own, or has the company finally started to run out of steam?
How Is Gartner Doing?
Q1 2025 was positive though the rate of growth may not have been anything to write home about. Revenues rose by 4.2% year-over-year to $1.5 billion, while net income advanced just 0.2% to $211 million. The rate of diluted earnings per share growth, however, was a bit more respectable than overall net income growth at 1.5%.
In the cases of both revenue and earnings, Q1 continued well-established growth streaks. Gartner has been able to sustain revenues for 17 consecutive quarters, while earnings have grown in each of the last four quarters.
It’s worth noting, however, that there could be some challenges ahead that could break these streaks. In particular, the fact that about 5% of Gartner’s contracts are government contracts at a time when the federal government is working to reduce its spending could negatively impact the company.
Free cash flow has also mushroomed considerably over the last year. In Q1, the company delivered $288 million of FCF, up more than 70% from the $166 million it reported in the year-ago quarter. This increase in free cash flow is quite attractive, especially considering the possibility that the US economy could enter a recession later this year.
Gartner delivers respectable profitability and on a trailing 12-month basis, the company has been able to deliver a net margin of 19.8%, an operating margin of 18.1% and a return on invested capital of 35.7%. Even though earnings per share rose only modestly in Q1, this level of profitability could be a very positive indicator for investors looking for a stable business to invest in.
Gartner’s Growth Opportunities
Like many companies in and around the tech sector, Gartner has significant opportunities ahead of it as adoption of AI by businesses, government organizations and other entities continues.
As a leading IT consulting firm, Gartner is uniquely positioned to help its customers deploy AI effectively. Per its Q1 earnings call, the company is already engaging heavily with its customers regarding AI and building out a proprietary database of AI research.
Gartner is also slated to do quite well in a growing market. Global spending on tech consulting is expected to hit about $421 billion this year, up 7% from last year. With AI and other technologies changing rapidly, spending on tech expertise will likely continue to rise. These tailwinds will undoubtedly be positive for Gartner, even if government spending retreats somewhat.
Gartner Trades at a Premium, But the Price May Be Justified
At 27.8x earnings, 5.5x sales and 23.0x book value, there’s no disputing that Gartner shares command a bit of a premium price tag. When one considers the company’s strong profitability and ROIC, though, there’s at least a decent argument to be made that the premium is justified.
One other factor that could justify Gartner’s somewhat high price tag is the company’s habit of returning cash to shareholders via share buybacks. Since 2019, Gartner has been repurchasing shares at a fairly brisk pace, reducing its share count from over 91 million to only about 78 million. The company still has a repurchase authorization of about $870 million, giving management a fairly free hand to buy back shares whenever they look appealing.
With that said, it’s also important to recognize that institutional investors have seemed less than enthusiastic about Gartner over the last several months.
On a trailing 6-month basis, institutions have sold about $31 billion worth of IT stock while buying only about $21 billion. Though this doesn’t rule Gartner out, the fact that the balance of institutional trading has leaned toward selling recently could somewhat undermine the value argument in favor of IT.
Is Gartner a Safe Stock to Own Now?
The current consensus price target for Gartner is $476.52, implying a return of about 6.6% from its last closing price of $446.95. As such, Gartner may be trading at a more or less fair value at current prices.
Although the company could face some near-term headwinds, there’s not much to suggest that Gartner is fundamentally unsafe right now. In fact, current tech trends could keep Gartner growing steadily well into the future.
For Peter Lynch-style investors, it has at least a decently strong balance sheet with $2.5 billion worth of debt on its books and hasn’t increased this debt load over the past three years. It also has about $4.1 billion in current assets and $8.5 billion in overall assets.
Though Gartner may not be able to deliver massive growth, management’s approach to gradually increasing the contract base while insulating it from outrageous volatility is admirable. Government spending does present a bit of a problem, but it seems likely that in the long run Gartner’s tailwinds will outweigh its headwinds.
On the whole, Gartner looks like a reasonably conservative stock to own today. Although investors may not see the kind of outsized returns that have been prevalent among large tech companies from their IT shares, Gartner looks like a good slow-and-steady investment.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
