Gartner Stock News (NYSE: IT) - A Case Study: Mike Swanson (09/26/2016)

Gartner is a stock that is often under the radar, because it is not in the CNBC fad stock world, but it is a large market cap stock that has been one of the top gaining stocks in the entire stock market since the stock market meltdown of 2008.

The Gartner company is one of the nation’s leading advisory and researching firms using data and analysis to provide insights for America’s largest corporations.

It is based in Connecticut and has over 7,800 employees.

The company had an operating income of $288 million and generated a net income of $175 million dollars in 2015.

Its stock shares are widely owned by institutions and what has been happening with the stock is a big case study lesson into what has transpired with the entire US stock market in the past few years.

First take a look at IT shares with this chart for it.


As you can see shares of IT went all the way down to below $10 in 2009 and all of the way up to over $100 in 2016 for a massive gain.

However some funny things have happened with the stock.

For one thing as of September 2016 it has become very highly valued trading with a P/E of 41 and a forward P/E of 21.

That’s a huge valuation.

Now lots of stocks have high valuations, because the stock market has gone up for years.

But Gartner management has done something to help make the stock price go up.

And that is they have been using company money to buy shares from the stock market in stock buyback programs.

What happens is they buy a share from the stock market and get rid of it.

That reduces the number of shares outstanding for people to buy and helps to make the stock go up by providing big buying for it.

With a lower number of shares outstanding management is able to report boosts in earnings growth per share.

And Garnter has been doing this big time.

In fact last year Gartner bought back over $500 million in its own stock when it only made $175 million in net revenue.

Take a look at this balance sheet.

As you can see shares of IT went all the way down to below $10 in 2009 and all of the way up to over $100 in 2016 for a massive gain.

However some funny things have happened with the stock.

For one thing as of September 2016 it has become very highly valued trading with a P/E of 41 and a forward P/E of 21.

That’s a huge valuation.

Now lots of stocks have high valuations, because the stock market has gone up for years.

But Gartner management has done something to help make the stock price go up.
And that is they have been using company money to buy shares from the stock market in stock buyback programs.

What happens is they buy a share from the stock market and get rid of it.

That reduces the number of shares outstanding for people to buy and helps to make the stock go up by providing big buying for it.

With a lower number of shares outstanding management is able to report boosts in earnings growth per share.

And Garnter has been doing this big time.

In fact last year Gartner bought back over $500 million in its own stock when it only made $175 million in net revenue.

Take a look at this balance sheet.


If you look at it closely you will notice two things.

First you will see that Gartner is spending more money on buying backs its own shares than it is making in revenue.

Secondly you will see that this fact increased as the years went by.

I don’t have the data from before 2013 on here, but it was not buying back stock like this before that year.

The Gartner buybacks took over a billion dollars worth of shares out of the stock market.

That’s huge buying that helped to make the stock go up.

However, Gartner funded this buying by issuing bonds to borrow money from the bond market.

In other words it went into debt to buy its own stock back.

Now this has been going on across all of corporate America and has helped push hundreds of stocks up.

Now take a look at this chart.

What you are looking at are the number of shares corporate America has bought back in aggregate.

You can see how the buybacks have helped make the S&P 500 go up in price.

Notice though that the buybacks have now been faltering in the past few months.

That could spell big trouble for the stock market as a whole going forward.

It may not mean much for what IT shares do for the rest of this year, but Gartner buybacks have definitely helped IT stock go up.

The question is will Gartner continue to do these buybacks?

A lot is happening in the financial markets right now.

Another way to look at IT shares is to use simple technical analysis.


When you use charts and trends analysis of the stock price to decide whether a stock is more likely to gain in price or decline going forward.

You can also use various technical indicators on a chart to help you do this such as the 20-day Bollinger bands and use a relative strength investing strategy that looks to buy the strongest stocks in the market and avoid the weakest ones.

Now the simplest indicator people use are moving averages, especially the 150 and 200-day moving averages, which I have on the above chart.

Typically when a price is above those two long-term moving averages you are in a large bullish trend and when it is below those moving averages it is in a negative trend.
As you can see right now IT is above both of those moving averages.

It could stay above them for the rest of the year even though they are starting to flatten out.

There are many stocks right now in worse shape than IT is, because they are below these moving averages and are in a downtrend.


You can use these two averages to figure out what the big picture trend of a market or a stock is as you can see above.

I call this stage analysis and in a bull market the long-term 150 and 200-day moving averages tend to go up and act as a key support level that works to buy off of on dips.

This year gold stock picks and the price chart of gold both went through these moving averages after having been below them for several years.

The simple conclusion from that is that they both began new bull markets this year, but as in all bull markets you will see dips to those moving averages usually once or twice a year.

If you look on the chart of IT at the top of this post you can that is how it acted it made a giant price bottom in 2009.

Gartner shareholders who simply watched those moving averages over the years knew that everything was well and it was best to hold.

Of course the longer a trend goes on the more likely it is too change and today the overall stock market is trading very shaky with many stocks actually below these moving averages.

Gartner stock and the news around it is basically a case study in what actually helped drive many stocks higher in what has been in an overall weak economy.

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