I wrote about Gartner in December. I bought the stock then. The thesis relied on cash flow, negative working capital, and the competitive moat.
Since that post, the sector volatility increased.
The software sector sold off this week. Gartner stock followed the trend. It closed yesterday at $209.61.
1. The Numbers: EBT and Cash
I do not use EBITDA. I focus on Earnings Before Taxes (EBT) and Free Cash Flow. These metrics show the true purchasing power of the business.
The EBT Yield Management raised guidance for 2025. They guide for Adjusted EPS of at least $12.65. The adjusted tax rate is roughly 23%. This implies Pre-Tax Earnings (EBT) of approximately $16.42 per share.
At a price of $209, the stock trades at roughly 12.7 times EBT. Inverting this gives an EBT Yield of 7.8%. For a monopoly asset with negative working capital, a nearly 8% earnings yield is a value price.
The Cash Conversion Accounting earnings can be manipulated. Cash cannot. Management guided for $1.145 billion in Free Cash Flow for 2025. This represents a conversion rate of 165% relative to GAAP Net Income. The business generates more cash than accounting profit.
2. The Equity Bond: Gartner vs. The 10-Year Treasury
The Risk-Free Rate The U.S. 10-Year Treasury currently yields approximately 4.2%. This coupon is fixed. If inflation rises, the real value of that coupon falls.
The Gartner Yield Based on the current price ($209) and the guided Free Cash Flow ($1.145 billion), Gartner offers a Free Cash Flow Yield of 7.5%. This is a spread of roughly 330 basis points over the risk-free rate.
The Difference When you buy the bond, your 4.2% yield is static. When you buy Gartner, your 7.5% yield is dynamic. It grows in two ways:
Organic Growth: Even with modest revenue increases, cash flow grows.
Share Cannibalization: In Q3 2025 alone, management bought back $1.1 billion of stock, reducing the share count by 4%.
Every share they retire increases the Free Cash Flow per remaining share. I prefer a 7.5% yield that grows over a 4.2% yield that stagnates.
3. The Event: The Digital Markets Sale
On January 29, Gartner sold the Digital Markets division (Capterra, Software Advice) to G2.
Disclaimer: This article is for informational purposes only. It is not financial advice. I am not a financial advisor. I may buy or sell these stocks at any time. You must do your own research before investing
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