This tech stock has experienced a significant surge of almost 40% since August, indicating that its growth potentially has more ground to cover.
Positioning and workflow tech company Trimble (TRMB) might seem complex, but a closer look at its long-term prospects reveals a company on a trajectory to boost earnings and cash flow substantially in the upcoming years.
Here's why investing in Trimble now is a smart move.
Trimble gains popularity
Trimble's stock saw a decline when compared to January 2022, but it's currently up 34% in 2024 and an impressive 75% over the past year. The stock soared 15% since Nov. 5 following the company's third-quarter earnings report, where management raised its full-year revenue and earnings margin projections.
While the market was delighted with the news, headline projections alone should not be the sole judge of progress at the company.
The essential metric for Trimble
Architecture, Engineers, Construction, Owners (AECO)
While revenue and earnings are important, the key metric to keep an eye on with Trimble is its annualized recurring revenue (ARR).
$1.21 billion
Management calculates ARR by adding its subscription and maintenance and support revenues for the current quarter, then dividing that sum by the number of days in the quarter, and multiplying the quotient by 365. It essentially represents the annual revenue run rate of its recurring revenue and is, therefore, the major factor influencing its free cash flow (FCF) growth.
18%
Why ARR is set to increase
Management expects its ARR to grow between 11% and 13% for the whole year. Notably, management has confidence its growth is leaning toward the higher end of the range. This significant growth rate is fueled by the increasing adoption of its premium software and services offerings.
Field Systems
Trimble's origins are in precise positioning and sensing technology hardware used in construction, geospatial mapping, transportation/logistics, and agriculture. However, its future lies in becoming an integral part of its customers' daily operations by enhancing their planning, modeling, and analytically optimizing their daily tasks using the data collected by its hardware.
$328 million
Examples include precise and timely routing of logistics fleets, precise management of construction/infrastructure projects (notorious for cost overruns due to poor execution), and using geospatial data to minimize waste. In essence, Trimble's solutions act as a bridge between the digital and physical worlds, enabling the latter to function in line with what's planned, monitored, and analyzed in the former.
18%
Trimble's revenue is split into three categories. Its AECO (Architecture, Engineers, Construction, Owners) segment is rising at a notable rate. Although the Transportation and Logistics segment performance seems less impressive, it should be noted that a slowing demand has heavily impacted the freight markets. Trimble's CEO, Rob Painter, described the freight market as still in a "recession."
| Trimble Segment | Q3 ARR | Organic ARR Growth ||---|---|---|| Architecture, Engineers, Construction, Owners (AECO) | $1.21 billion | 18% || Field Systems | $328 million | 18% || Transportation & Logistics | $649 million | 5% || Total | $2.187 billion | 14% |
Transportation & Logistics
Trimble boosts its performance
$649 million
The growth in ARR does not solely depend on the increasing popularity of its solutions. Instead, it can be attributed to Trimble's strategic efforts to streamline the company and focus on its core markets where it excels.
5%
As Painter noted, Trimble has discontinued 22 businesses over the last four years. Key deals include the creation of a joint venture PTx Trimble with agricultural machinery company Agco (AGCO), from which Trimble received $2 billion in cash and a 15% stake in the joint venture. Additionally, in September, Trimble announced it would sell its global transportation telematics business to Platform Science in exchange for a 32.5% stake in the expanded company.
Both deals demonstrate Trimble's management's commitment to restructuring the company to thrive in its main markets.
Total
A promising stock
$2.187 billion
Trimble's strategic restructuring plan is yielding results, and its growing software and services revenue is enhancing its profitability. ARR is growing at a mid-teen rate, and Wall Street anticipates an increase in FCF from roughly $500 million in 2024 to $817 million in 2026.
14%
With the adoption of data analytics and digital technology just beginning in the industrial sector, Trimble has a long path of growth ahead, and the stock is an attractive choice for growth investors.
Given the strong performance and growth potential of Trimble, investing in its finance sector could prove profitable. The company's focus on streamlining its operations and investing in its core markets, such as construction and agriculture, has led to an impressive 14% increase in its total ARR. This growth in revenue, coupled with its strategic partnerships and focus on digital technology, positions Trimble as a promising investment opportunity for those focused on long-term gains in the finance and money markets.
