Stock Analysis

Should You Be Adding Globant (NYSE:GLOB) To Your Watchlist Today?

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NYSE:GLOB
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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Globant (NYSE:GLOB). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Globant

Globant's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Globant's EPS has grown 21% each year, compound, over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Globant's EBIT margins were flat over the last year, revenue grew by a solid 27% to US$893m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NYSE:GLOB Earnings and Revenue History June 11th 2021

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Globant's forecast profits?

Are Globant Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$8.8b company like Globant. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$176m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Is Globant Worth Keeping An Eye On?

You can't deny that Globant has grown its earnings per share at a very impressive rate. That's attractive. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. We don't want to rain on the parade too much, but we did also find 1 warning sign for Globant that you need to be mindful of.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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