This Growth Stock Is Trading at Value Prices

Core Insights - Trimble is a highly cash-generative company with mid-teens growth in key metrics and ongoing margin expansion, trading at attractive valuation multiples, making it a strong growth-at-a-reasonable-price (GARP) stock for investors [1] Growth Prospects - The company originated in hardware and precision technology, serving sectors like construction, geospatial, agriculture, and transportation, but is now focused on integrating software with its products to enhance customer workflows [2] - The shift towards a software- and services-based model is driving profit margins higher and resulting in consistent mid-teens annualized recurring revenue (ARR) growth [3] Importance of ARR - Currently, 65% of Trimble's revenue is recurring, with 80% coming from software and services, allowing mid-teens ARR growth to translate into free cash flow (FCF) due to the ease of collecting recurring subscriptions [4] Future Growth Expectations - Management anticipates 13% to 15% organic adjusted ARR growth in 2025, bolstered by the integration of artificial intelligence (AI) into its analytical capabilities [5] Financial Projections - Wall Street projects Trimble's FCF to grow at a 26.6% annual rate from 2024 to 2027, leading to a valuation of 17.6 times FCF in 2027, with plans to return a third of FCF to investors through buybacks [6] Profit Margins and Valuation - Profit margins are expanding due to the transition to higher-margin software and services revenue, indicating that the stock is undervalued relative to its strong long-term growth outlook [8]