Investing In AI And Global Expansion Will Strengthen Future Prospects

Key Takeaways

• Long-term investment in AI and integration across operations position Globant for future growth, with AI-related projects contributing significantly to revenue.
  
• Expansion in new markets boosts revenue potential, while the company's focus on creative storytelling and technology integration enhances brand differentiation.
  
• Political volatility in Latin America, client reliance, competitive pricing, and tech adaptation challenges may impact Globant's revenue stability and profit margins.

Catalysts

Provides technology services worldwide.

• Globant's long-term investment in AI and the integration of AI-driven processes across operations, digital branding, and enterprise functions positions it for future revenue growth, particularly as AI-related projects have already contributed significantly to revenue and are expected to grow further.
  
• The strong performance and scalability of Globant's AI studios and enterprise AI platform are expected to drive operational efficiencies and improve net margins as these technologies become integral to client operations.
  
• The expansion in new markets, including significant growth in the Middle East and Asia Pacific regions, is expected to boost revenue as these areas continue to develop and Globant capitalizes on new opportunities.
  
• Globant's increasing number of large-scale clients and deepening client relationships across industry verticals are expected to provide stable and growing revenue streams, supporting overall earnings growth.
  
• The company's strategic focus on integrating creative storytelling with technology and branding is anticipated to create higher-margin products that stand out in the market, potentially enhancing earnings through brand differentiation and loyalty.

Globant Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Globant's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.9% today to 9.1% in 3 years time.
• Analysts expect earnings to reach $310.8 million (and earnings per share of $6.72) by about April 2028, up from $165.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $417 million in earnings, and the most bearish expecting $248 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.6x on those 2028 earnings, up from 28.3x today. This future PE is greater than the current PE for the GB IT industry at 33.9x.
• Analysts expect the number of shares outstanding to grow by 2.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

Globant Future Earnings Per Share Growth

Risks

• Exposure to political and macroeconomic volatility in regions like Latin America could negatively impact revenue growth and the conversion of pipeline opportunities, particularly in Mexico and Brazil.
  
• The company's reliance on major clients like Disney and their evolving investment patterns present a risk to quarter-on-quarter revenue stability, which could affect predictable earnings growth.
  
• The challenging pricing environment and low single-digit price increases in competitive cost-saving projects may pressure Globant’s net margins.
  
• The need for rapid adaptation to new technology trends like AI may require continuous investment in talent and technology, potentially impacting net profit margins if not managed efficiently.
  
• The dependence on a significant portion of revenues from a few top clients, including professional services companies, could lead to instability in revenue and earnings if those industries face downturns.

Valuation

• The analysts have a consensus price target of $201.874 for Globant based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $260.0, and the most bearish reporting a price target of just $130.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.4 billion, earnings will come to $310.8 million, and it would be trading on a PE ratio of 37.6x, assuming you use a discount rate of 8.0%.
• Given the current share price of $106.59, the analyst price target of $201.87 is 47.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.