By:
Alex Penkwitz, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
• Globant SA (NYSE: GLOB) operates as a technology services firm,
providing engineering, design, and innovation services for clients. Globant SA was
founded in 2004 and is headquartered in Luxembourg.
• GLOB reported strong third
quarter numbers on November 14th, posting record revenues of $171.3
million.
• Attrition has continued
to improve, floating around 14% during the quarter.
• GLOB has seen substantial
growth from their top clients, reiterating the success of their 50 Squared
strategy.
Key
points:
GLOB posted revenues of $171.3 million, growing 27.3%
year-over-year. This revenue growth was driven by clients within the 50 Squared
strategy, diversifying the base of multimillion-dollar accounts. In addition to
strong revenue growth, GLOB has seen SG&A expenses decrease by 30 basis
points compared to a year ago. This is relatively in line with management’s
guidance, expecting about 50 basis points of SG&A leverage annually.
Attrition has been a
highlighted metric for GLOB due to the high demand for talented employees in
the IT services industry. GLOB boasted a 14% attrition rate to end the third
quarter, which was 5 points lower than a year ago. In addition, GLOB exceeded 11,000
Globers worldwide, increasing roughly 1,200 IT professionals from the second
quarter.
The 50 Squared strategy
for GLOB, focusing efforts on the top 50 clients with the highest growth potential,
has proven to be effective. GLOB now has 13 accounts above $10 million in
annual revenues compared to 9 a year ago. In addition, there are now 104
accounts above $1 million compared to 90 a year ago.
What
has the stock done lately?
Technology stocks rebounded
well during 2019 from a rough fourth quarter of 2018 and GLOB’s price has seen this
trend. Since the beginning of 2019, GLOB’s stock price has risen 77%. Although
the stock has seen fluctuations, these were generally due to overall market fluctuations
and nothing firm specific.
Past
Year Performance:
GLOB has increased 89% over the last 12 months.
As I mentioned in the above section, the stock saw fluctuations that were in
line with the market. The overall increase in value is due to the strong
financial performance of the company as well as the bounce back of technology
stocks during 2019.
Source:
FactSet
My
Takeaway
When this stock was first
pitched, its price was $70.56 and the price target set on the stock was $86.28.
The stock has exceeded the initial price target by nearly 18% in under a year
of being held in the AIM International Equity Fund. I expect GLOB’s stock price
to continue to rise, but at a slower pace than in early 2019. I believe that
the price target should be raised to $110, reflecting a roughly 10% increase in
the current stock price.
Sources:
FactSet
Globant
SA (2019). Q3 2019 10-Q. Retrieved from FactSet online database.
Globant
SA (2019). Q3 Earnings Call Transcript. Retrieved from FactSet online database.
