Gartner (NYSE:IT) is the world’s leading provider of information technology research and advice for information technology executives. The company’s research reports and benchmarking data are used by information technology executives across industries to make mission-critical decisions with potential multi-million dollar ramifications, and the subscription price represents just a fraction of the typical information technology budget. In other words, Gartner is the Consumer Reports of the information technology industry. However, while the Gartner brand has been among the most recognizable in information technology research for more than 35 years, most sizeable enterprises are still not Gartner subscribers. The company is investing heavily in sales and marketing to grow its customer base and based on the excellent long-term track record of Gartner management, we believe these investments are likely to drive years of double-digit growth. While the company trades at a high multiple of GAAP earnings, that multiple falls significantly after adjusting sales and marketing expenses to account for the multi-year life of new customers. (See Bill Nygren (Trades, Portfolio)’s market commentary). On our adjusted earnings estimates, Gartner’s price-to-earnings ratio is in line with the S&P 500. We believe this is a bargain price for a high-return, high-growth business with an excellent management team.
From Bill Nygren (Trades, Portfolio)'s Oakmark Fund second-quarter shareholder letter.
