Globant's (NYSE:GLOB) stock price surged nearly 70% over the past 12 months as the IT services and software company stayed strong throughout the pandemic. Demand for its services, which are fulfilled by a growing army of IT professionals, remained elevated as more people worked remotely and companies strengthened their online services.

But can Globant maintain that momentum this year? Let's examine its business, growth rates, and valuations to find out.

How does Globant make money?

Globant was founded in Argentina in 2003 and became the first Latin American software company to go public on the NYSE in 2014.

However, the company is now based in Luxembourg, and it generated 70% of its revenue from North America last quarter. Latin America and other countries accounted for another 22.4% of its revenue, while the remaining 7.6% came from Europe.

Software developers create a mobile app.

Image source: Getty Images.

Unlike bigger IT companies that provide a wide range of infrastructure services, Globant primarily helps companies develop new mobile apps, websites, and "digital journeys" for their customers. It's repeatedly expanded by acquiring smaller players like Clarice Technologies, WAE, L4 Digital, Ratio, PointSource, and Avanxo over the past few years.

Globant's total number of IT professionals rose 28% year over year to 13,436 in the third quarter of 2020. Its headcount dipped slightly in the first quarter after the initial impact of the COVID-19 pandemic, but it still added 1,863 more IT professionals to its payroll during the third quarter upon witnessing a "gradual improvement" in market demand.

Over a thousand of those new employees came from Globant's takeover of gA, a digitally native technology services company, in August. Excluding that acquisition, it added 717 IT professionals sequentially.

Globant's consultants served 893 customers over the past 12 months, up 20% from a year ago. Within that total, 118 customers each generated at least $1 million in revenue -- up from 104 in the prior-year quarter.

Globant's customer base might seem diversified, but it generated 45% of its revenue from its top 10 customers in the third quarter, up from 38.6% a year ago. Its top customer is Disney (NYSE:DIS) Parks and Resorts Online, which accounted for 10.8% of its third-quarter revenue.

How fast is Globant growing?

Globant's revenue rose 26% to $659.3 million in fiscal 2019. Its adjusted gross margin declined 20 basis points to 40.4% due to currency headwinds and investments in its ecosystem, but tighter cost controls boosted its adjusted operating margin by 90 basis points to 17%. Its adjusted EPS grew 32%.

In the first nine months of 2020, Globant's revenue rose 22% year over year to $581.5 million. Its adjusted gross margin dipped 180 basis points to 37%, partly due to COVID-19 costs, while lower utilization rates reduced its adjusted operating margin 240 basis points to 14.8%. However, its robust revenue growth still lifted its adjusted EPS by 6%.

During last quarter's conference call, CFO Juan Urthiague estimated that Globant's adjusted operating margins would stay between 15%-17% in the "near and mid-term" as its revenue growth and utilization rates rebound toward "pre-COVID-19 levels." Globant also recently acquired BlueCap, a Spanish consulting firm focused on the financial industry, which will add more than 160 new consultants to its platform.

Globant expects its revenue to rise at least 22% for the full year, and for its adjusted EPS to rise 5%. Next year analysts expect its revenue and earnings to rise 26% and 28%, respectively, as the pandemic-related headwinds fade and it integrates gA and BlueCap into its core business. Globant will also likely pursue more acquisitions this year since it needs to continually add more IT consultants to keep growing.

But is Globant's stock getting too pricey?

Globant enjoys a first-mover's advantage in its disruptive, forward-thinking niche. However, larger rivals like Accenture (NYSE:ACN) and IBM (NYSE:IBM) have also started offering similar services.

Globant is growing much faster than Accenture or IBM, but its stock is also much pricier. Globant trades at 67 times forward earnings, while Accenture and IBM have forward P/E ratios of 28 and 10, respectively. Both mature tech giants also pay dividends, while Globant has never paid one.

But compared to other software giants with comparable revenue growth rates -- such as Salesforce or Palo Alto Networks -- Globant doesn't look terribly expensive. Therefore, I believe Globant is still worth buying up here -- but investors should carefully weigh its customer concentration issues, near-term margin pressures, and rising valuations against the long-term growth potential of its "digital journeys."

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.