This technology company has numerous pathways to revenue growth and margin expansion.
A good value opportunity for a growth stock
Lee Samaha: Despite an excellent performance in 2024, Trimble stock is still down almost 27% from its all-time high. The decline is surprising, given the positioning and workflow technology company's progress in recent years.
Its hardware captures precise positioning data, which is then available in the cloud for multiple users to collaborate on. Meanwhile, its fast-growing software and services solutions provide advanced analytics so customers can produce actionable insights to improve their daily workflow. One example is its core architecture, engineering, construction, owners (AECO) segment solutions, which help reduce waste, lower construction costs, and ensure that construction/infrastructure projects will be delivered on time.
The company has three exciting medium and long-term earnings drivers:
- Increasing awareness of the power of connecting the digital and physical worlds and using advanced analytics and AI in the latter to improve execution in the former will drive adoption of its technology
- The relative increase in subscription and recurring services revenue creates a margin growth and cash flow expansion opportunity, given that it comes with a gross profit margin above 80% compared to about 50% for hardware and perpetual software
- The company's restructuring in recent years (such as forming a joint venture with AGCO and contributing its precision agriculture business and the recent sale of its transportation telematics business) creates a more focused company better able to compete in chosen end markets.
With its annualized recurring revenue continuing to grow at a low-teens rate Trimble's underlying growth and margin expansion opportunities are excellent, and trading on 24 times 2025 earnings estimates it's still a good value for a growth stock.
