Gartner (IT)

Research and advisory firm Gartner (NYSE:IT) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 4.2% year on year to $1.53 billion. Its non-GAAP profit of $2.98 per share was 9.7% above analysts’ consensus estimates.

Company Overview

With over 2,500 research experts guiding organizations through complex technology landscapes, Gartner (NYSE:IT) provides research, advisory services, and conferences that help executives make better decisions about technology and other business priorities.

IT Services & Consulting companies stand to benefit from increasing enterprise demand for digital transformation, AI-driven automation, and cybersecurity resilience. Many enterprises can't attack these topics alone and need IT services and consulting on everything from technical advice to implementation. Challenges in meeting these needs will include finding talent in specialized and evolving IT fields. While AI and automation can enhance productivity, they also threaten to commoditize certain consulting functions. Another ongoing challenge will be pricing pressures from offshore IT service providers, which have lower labor costs and increasingly equal access to advanced technology like AI.

Gartner's main competitors include Forrester Research (NASDAQ:FORR), International Data Corporation (IDC), and Information Services Group (NASDAQ:III), along with specialized research firms like Everest Group and NelsonHall.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $6.33 billion in revenue over the past 12 months, Gartner is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, Gartner’s sales grew at a solid 8.1% compounded annual growth rate over the last five years. This is an encouraging starting point for our analysis because it shows Gartner’s demand was higher than many business services companies.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Gartner’s annualized revenue growth of 6.1% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Gartner grew its revenue by 4.2% year on year, and its $1.53 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months, similar to its two-year rate. This projection is above average for the sector and suggests its newer products and services will help support its recent top-line performance.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Gartner has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 18.7%.

Looking at the trend in its profitability, Gartner’s operating margin rose by 4.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Gartner generated an operating profit margin of 18.1%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Gartner’s EPS grew at an astounding 25.6% compounded annual growth rate over the last five years, higher than its 8.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Gartner’s earnings can give us a better understanding of its performance. As we mentioned earlier, Gartner’s operating margin was flat this quarter but expanded by 4.2 percentage points over the last five years. On top of that, its share count shrank by 13.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Gartner reported EPS at $2.98, up from $2.93 in the same quarter last year. This print beat analysts’ estimates by 9.7%. Over the next 12 months, Wall Street expects Gartner’s full-year EPS of $14.15 to shrink by 12.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Gartner has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 21.3% over the last five years.

Taking a step back, we can see that Gartner’s margin expanded by 1.5 percentage points during that time. This is encouraging because it gives the company more optionality.

Gartner’s free cash flow clocked in at $288 million in Q1, equivalent to a 18.8% margin. This result was good as its margin was 7.5 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Gartner’s five-year average ROIC was 36.2%, placing it among the best business services companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Gartner’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Gartner reported $0 of cash and $0 of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.56 billion of EBITDA over the last 12 months, we view Gartner’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $64.27 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Revenue was just in line while EPS beat expectations this quarter. The market seemed to be hoping for more, and the stock traded down 2% to $419 immediately following the results.

Updated: May 17, 2025 at 12:02 AM EDT

Before investing in or passing on Gartner, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

When it comes to Gartner’s business quality, there are some positives, but it ultimately falls short. To kick things off, its revenue growth was solid over the last five years. And while Gartner’s projected EPS for the next year is lacking, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Gartner’s P/E ratio based on the next 12 months is 36x. This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $476.52 on the company (compared to the current share price of $448.29).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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