This company’s margins and recurring revenue are on an upward trajectory.
AI growth and the increasing adoption of digitally connected technology will drive its higher-margin recurring revenue.
The company does a great job of upselling and cross-selling solutions to its existing and new customers.
Workflow technology company Trimble (NASDAQ: TRMB) has several exciting growth drivers that can send its stock price higher in the coming years. Furthermore, they are already in place, and investors can see the evidence of their progression in the numbers. This isn’t a speculative growth stock; it’s a growth stock with established technology in the early innings of adoption.
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As such, investing $10,000 in Trimble will suit a more enterprising investor, but if you are a more conservative investor, $5,000 might suit you better. Alternatively, adjust the position size as appropriate to your portfolio size.
Trimble’s origins lie in its hardware solutions, which provide precise positioning using global navigation satellite systems. As such, it’s a well-known name in architecture and construction, what management calls “field systems” (civil engineering, geospatial, and other advanced positioning), and transportation and logistics.
However, its present and future lie in the growth of its software solutions, which use the data created by its hardware for modeling and data analytics purposes on an ongoing and connected basis. Consequently, Trimble’s solutions are becoming an increasingly important part of its customers’ daily workflows.
Major hardware manufacturers across its target markets appreciate Trimble’s capacity to generate value, as evidenced by its existing partnerships with Caterpillar, Liebherr, and Deere. Trimble also competes with Deere via its 15% stake in a joint venture with AGCO in the precision agriculture sector.
The shift toward recurring revenue from software lies at the heart of five key growth drivers for the company:
The change in revenue mix to software subscriptions from hardware and perpetual software implies improving profit margins, as (based on 2024 full-year numbers) the former has a near 84% gross margin compared to almost 46.5% for the latter.
The shift to recurring revenue, measured by annualized recurring revenue (ARR), helps de-risk future revenue, improves financial modeling and the predictability of cash flows, and makes customers more “sticky,” particularly if the software/services relate to daily workflows.
Increasing recurring revenue also creates a significant cross-selling and upselling opportunity for Trimble as it introduces new solutions to new customers.
The growth of artificial intelligence (AI) applications and the adoption of advanced analytics add more value to Trimble’s solutions.
Ultimately, the increase in ARR will improve free cash flow (FCF) as billing is automated, and the predictability of cash flows means Trimble doesn’t have to keep cash on hand for contingency purposes.
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