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Is Globant Stock a Buy?

By Leo Sun - Apr 22, 2021 at 11:00AM

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The forward-thinking IT services company could still have room to run.

Globant's (GLOB -1.75%) stock more than doubled in 2020 as demand for its internet-oriented IT services remained robust throughout the pandemic. However, its stock only advanced about 3% this year as rising bond yields sparked a rotation out of pricier growth stocks. 

Is Globant's stock losing its momentum, or is it merely taking a breather before generating even bigger gains? Let's review its business and growth rates to decide.

A leaner IT services company

Many big IT services providers, such as Accenture or IBM, offer a wide range of tech and outsourcing services. Their portfolios often blend slower-growth business software services with higher-growth ones in the cloud, security, and mobile app markets.

An IT professional checks a tablet.

Image source: Getty Images.

Globant is smaller than those IT giants and mainly helps companies develop their websites and mobile apps. It also helps them manage their digital marketing and cloud services.

Globant was founded in Argentina but is now based in Luxembourg, and it repeatedly expanded by buying smaller firms like Clarice Technologies, WAE, L4 Digital, Ratio, PointSource, and Avanxo.

It also recently agreed to buy Bluecap, a Spanish consulting firm focused on the financial industry, and CloudShift, a consulting firm which helps companies maintain their Salesforce platforms.

Simply put, Globant generates stronger growth than bigger IT services companies because it operates a more streamlined business. Its focus on mobile and cloud-based services also paid off during the pandemic as many businesses shifted their operations online.

How fast is Globant growing?

Globant has consistently generated more than 20% revenue growth over the past five years with stable gross and operating margins:

Fiscal Year

2016

2017

2018

2019

2020

Revenue growth (YOY)

27.2%

28.1%

26.3%

26.2%

23.5%

Gross margin*

42.3%

38.8%

40.6%

40.4%

39.1%

Operating margin*

16.9%

13.7%

16.1%

17%

15.2%

Adjusted EPS growth (YOY)

16%

17%

36%

32%

7%

Data source: Globant. YOY = year-over-year. *Non-GAAP.

Last year, COVID-19 costs squeezed its gross margins, while lower utilization rates reduced its operating margins. That pressure broke its streak of double-digit earnings growth.

But Globant expects its slowdown to be brief. It expects its revenue to rise "at least" 28.6% in fiscal 2021, for its adjusted operating margin to stay between 15% to 17%, and for its adjusted earnings to grow 31%.

Analysts expect Globant's revenue and adjusted earnings to grow 31% and 34%, respectively, this year. Those growth rates arguably justify its forward price-to-earnings (P/E) ratio of 56, which makes it pricier than many of its industry peers.

Accenture, for example, trades at 31 times forward earnings. However, Wall Street only expects the company's revenue and earnings to both rise about 11% this year.

A growing number of Globers and customers

Globant ended 2020 with 16,251 "Globers," or IT professionals, up from 11,855 at the end of 2019. That number has consistently risen as it expanded both organically and inorganically, and its Globers now work across 16 countries.

It served 798 customers in 2020, marking a slight decline from the 822 customers it served in 2019. That drop can be partly attributed to slower enterprise spending throughout the pandemic.

However, its total number of accounts that generated more than $1 million in annual revenues still rose from 107 to 129. Its major clients include Alphabet's Google, Electronic Arts, Coca-Cola, Rockwell Automation, and AB InBev.

Globant expects to gain more customers, especially in the education technology industry, next year. It also plans to deepen its relationships with existing customers by developing new AI tools like chatbots.

Is Globant worth buying?

Globant generates strong growth from a narrower range of services than its larger peers, and that focus makes it a more compelling investment than Accenture, IBM, and other traditional IT services companies.

Its stock might seem a bit pricey, but only when we compare it to older IT services companies. When we compare it to higher-growth tech companies, Globant's stock still looks reasonably valued. Therefore, I believe this stock is still worth buying today, and it still could have plenty of room to run.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Salesforce.com. The Motley Fool owns shares of and recommends Accenture, Alphabet (A shares), Alphabet (C shares), Globant, and Salesforce.com. The Motley Fool recommends Anheuser-Busch InBev NV and Electronic Arts. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Globant Stock Quote
Globant
GLOB
$230.38 (-1.75%) $-4.10
Electronic Arts Inc. Stock Quote
Electronic Arts Inc.
EA
$133.59 (-1.12%) $-1.51
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$120.05 (-1.36%) $-1.65
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$137.32 (0.56%) $0.76
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$64.98 (-0.07%) $0.04
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
BUD
$53.80 (-1.79%) $0.98
Salesforce, Inc. Stock Quote
Salesforce, Inc.
CRM
$187.17 (-1.28%) $-2.42
Accenture plc Stock Quote
Accenture plc
ACN
$317.82 (-0.92%) $-2.96
Rockwell Automation Inc. Stock Quote
Rockwell Automation Inc.
ROK
$253.66 (-2.23%) $-5.79
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$120.80 (-1.39%) $-1.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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