Best Stocks for 2016: Globant (GLOB) Stock Still a Stupendous Pure Play

Editor’s note: This column is part of our Best Stocks for 2016 contest. Jon Markman’s pick for the contest is Globant SA (GLOB).

For the past couple of years, I’ve been telling anyone who will listen that the Internet of Things (IOT) is the next great technological breakthrough. A revolution that will have an impact on every aspect of our lives.

10BEST2016_final_185x185Spoiler alert: I expect that Globant (GLOB) stock will be an excellent way to play this trend.

Our automobiles, fridges, toasters, lamps, stereos, TVs, lights and commercial buildings all sharing a single network. All communicating with each other to make life easier. This isn’t some utopian dream that perpetually exists in the not too distant future — it’s here now.

Imagine on your way home from work, your car alerts your garage door to open as soon as you enter your neighborhood. Your home alarm is disengaged. It also turns on your lamp and adjusts your temperature controls. It automatically fills your hot tub and tunes your stereo to your favorite Spotify playlist…

The technology to achieve this is already here. And that’s just a peek into one of the areas of life that is undergoing a radical change. Transportation, retail, television media, gaming, payment processing, healthcare, industrial manufacturing, news gathering — you name it, as nearly every segment of our world is experiencing this shift in how we interact with technology.

There are many ways to profit from this new world, but like I mentioned in the previous report, the true value in this space lies not with hardware tech, but with the services layered on top that allow us to better interact with this new always-online world.

That’s where Globant stock enters in. It’s the young $1 billion technology services and brand development provider that bridges the gap between the technology and the user experience. This new and emerging technology has been moving too quickly for most businesses to keep up with and for many of them, Globant is the solution.

The firm believes that as companies attempt to adapt their business models to benefit from these emerging technologies, they will seek solutions that meet the engineering requirements but that also engage the end user in new and powerful ways. In other words, keeping up with the latest technological breakthroughs while also deepening brand loyalty with users.

Since I last visited Globant and made GLOB stock my Best Stocks for 2016 pick, the firm has reported fourth quarter results that once again exceeded expectations on all fronts. Revenues of $71.6 million represented a 29.8% jump from a year ago and were well ahead of the $68.7 million that analysts expected.

Additionally, Globant chief executive and co-founder Martin Migoya guided 2016 full year revenue and earnings growth ahead of street estimates.

The Globant stock price has taken nearly a 20% haircut since the beginning of the year, but much of that is just due a crease of sentiment. After rising over 140% in 2015, the tech services company’s shares weren’t cheap by most standards, and the rough start for tech and small companies at the start of 2016 didn’t help.

A deeper look however reveals that GLOB is currently trading at 22 times forward earnings, which is below many of its peers. Annual revenue as well as the average revenue per client is accelerating, and for the first time the company now has over 50 separate clients with revenues of $1 million or more.

Now a bit of the bad news. While gross profit jumped 20.7% this past year, it was at a slightly slower pace than overall revenues due to the significant Argentine peso depreciation in 2014.

Also, one of the exciting things the firm is currently working on is its partnership with Google (GOOG, GOOGL) on a modular smartphone, dubbed Project Ara. The idea is to provide a highly customizable phone where various modules such as the display, camera, battery, etc are all interchangeable. Recent delays in the initial prototype have also placed a bit of a damper on GLOB stock despite it having no significant impact on the company’s overall expected revenues for the next couple of years.

Globant, however remains one of the best in the segment in growing client revenues the longer they are with the firm. The typical customer engagement grows from an average of $500k in revenues and a handful of services offered in year one to revenues of $5 million and GLOB professionals deployed across several areas of the client’s company by the third year.

That represents phenomenal client expansion and integration that few companies in any industry can claim.

GLOB is still growing at an accelerated pace and presents one of the few pure plays on the many breakthroughs happening in the emerging technologies surrounding the IOT.

The recent pullback in Globant shares should be an excellent opportunity to take advantage of one of the most exciting but well-grounded companies in all of tech.

Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.

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