rewrite this title Is It Time to Exit Trimble’s Lackluster Growth Story? – Nanalyze

Growth vs value. It’s not a binary classification. Stocks can exhibit characteristics of both, and this can be a good thing. The so-called, “best of both worlds.” It’s when a company is generating loads of cash, returning some to shareholders, and also growing revenues and profits at an above-average pace year-over year. Consistency is a characteristic of a quality company, and revenue diversification helps reduce volatility. But what happens when internal diversification keeps a company from growing much? That’s where we’re at with Trimble (TRMB) today. Why should we hold any “disruptive technology” stock when their growth looks like this?

It makes you wonder why we began holding it in the first place.

Going Long Trimble Stock

Our first piece on Trimble four years ago added the stock to our catalog as a “like” citing their consistent high single-digit revenue growth along with the appeal of their geospatial and agriculture businesses. (Back then, our expectations for growth were a bit more lenient.) A year later we went long Trimble with the below reasoning:

Given the dearth of quality IoT stocks, we moved into a Trimble position as a way to play multiple growth themes. We particularly like the geospatial and agriculture exposure which made up nearly half of Trimble’s 2021 revenues. As the current bear market decimates growth stocks, Trimble is showing some resilience because their various business segments are providing a diversification effect. 

The article detailed our decision to invest in Trimble and cited a possible “conglomerate effect” which means their diversification actually creates a discount in valuation which was observed then and now. (Trimble’s simple valuation ratio of six is right around our catalog average while before it was about half that.) The downside is that the various business segments offset each other such that there’s no chance for real growth to take place, which is exactly what we’re observing. Today, Trimble appears to be a more concentrated business because of their recently completed reorganization.

Trimble’s Big Reorg

Trimble’s business has changed a bit since we first invested in the company. In mid-2024 they sold 85% of their hardware-centric agriculture business to increase focus on higher-margin, software-driven businesses like construction and transportation. The $2 billion in proceeds helped pay down debt leaving them with $290 million in cash and $1.4 billion in long-term debt remaining. That’s after spending $627 million last quarter on share repurchases which means several things. It will inflate earnings-per-share, and it implies that shares are currently undervalued (more on this in a bit).

Then earlier this year, Trimble exited their global transportation telematics business for the same reasons – to focus on higher margin software offerings. That leaves them with the below three divisions.

Following the reorganization, we’re told that growth should resume, but perhaps not at the sort of pace we’d like to see.

Starting Off a New Base

We exit a disruptive tech stock for one of two reasons – growth stalls or our thesis changes. So, what happens when a company has a reorganization, and growth starts at a new baseline? We’ve had this happen with numerous companies and it always poses a dilemma. Trimble explains away their lack of expected growth in 2025 by saying, “if you exclude all those business segments we sold off then we actually expect 4.5% to 7.5% growth” (see below):

This is a company that has bought more than 100 businesses over the years and sold over a dozen. Mergers, acquisitions, and divestitures are part of their business model. So why are they only managing to cobble together a collection of growing businesses just now? Perhaps they’ve been stringing us along a bit with this “we’re moving everything to recurring revenues” story.

The Significance of ARR

We’ve talked before about how companies that move their clients from hosted solutions to the cloud can see an uplift in revenues. That’s because some of the money customers save by not having to host goes into the pockets of the cloud provider as high-margin revenues. The more a cloud provider scales, the more their margins expand. Below we can see the remarkably consistent expansion of Trimble’s gross margins over time.

Indeed, the move to recurring revenues is helping profitability, but what about overall revenue growth?

While ARR might be growing at a much faster clip than revenues, perhaps it’s just cannibalizing existing customer spending. It’s a change in the contracts they’re signing, and not necessarily an increase in revenues. A late 2024 investor deck has Trimble targeting $4 billion in revenues for 2027 which means about 8.5% growth for the next two years. It’s a return to the time of high-single-digit revenue growth, but still under our double-digit threshold for disruptive tech stocks.

The other appeal of recurring revenues would be consistency and the ability to start monitoring other software-as-a–service (SaaS) metrics such as net retention rate (NRR) which is the ability to upsell existing customers. Their AECO segment has now achieved 95% recurring revenues and they’ve even provided an NRR number – 110% – which means existing customers are spending more over time. All that translates into expected organic revenues growth in the “mid teens,” but at the company level it’s still lackluster as the other divisions create a drag on growth.

The gross margin expansion over time is truly impressive, but it’s not why we hold growth stocks. The company’s focus on margins and profitability along with their large share repurchases means they see themselves more as a value stock than a growth stock. That’s pretty much how we see it too.

Our Take on Trimble Stock

Trimble disparate collection of businesses was attractive because it provided exposure to multiple themes, it provided resilience during difficult times, and it possibly contained an embedded conglomerate discount that could eventually be unlocked. As the reorganization finally takes shape, we’re supposedly left with the best parts as each segment moves towards maximizing recurring revenues. Given the targets mentioned in the 2024 investor deck we’re to expect 8.5% over the next two years leading to $4 billion in revenues for 2027. We expect at least 10% growth for disruptive tech companies. The investor deck also talks about 7% to 9% growth over the next three years. Again, under our threshold of double-digit growth.

We also need to consider the sort of exposure we’re getting here. “Transportation & Logistics” is exposure we don’t need because we’re already holding a leader in this space – Samsara (IOT). However, this segment was only 15% of Trimble’s total revenues last year. The other two major segments – AECO and Field Systems – are collectively described as “Engineering and Construction” which is exposure we might find elsewhere.

Trimble vs Procure

Another company dabbling in the “construction software” space would be Procure (PCOR) which we actually looked at as a possible investment prior to going long Trimble. Back then we described it as, “the type of company you want to buy when there’s a recession, not when times are good.” The idea being that construction and engineering firms typically mimic the quality of the economy, and that we’d prefer industry verticals more resilient to market downside.

Procure stock has almost the exact same market cap – $11 billion – as it did when we first looked at the company four years ago despite revenue growth persistently moving upwards. So perhaps it’s a question of whether one should hold Trimble or Procure. The latter has the double-digit growth we’re looking for alongside gross margins upwards of 80%.

At a simple valuation ratio of nine, Procure wouldn’t be considered overvalued given the growth on display. If they can manage to stop the growth deceleration and keep things in the double digits, this might be a good substitute for Trimble in our portfolio.

Perhaps the next step should be to evaluate Procure as a possible replacement for Trimble which just isn’t quite showing the growth we expect from truly disruptive companies. While Trimble’s two main divisions might exhibit more breadth than just traditional construction use cases, they’re clearly not synergistic enough to drive real growth. Our reservations for Procure – last time we checked – involved stiff competition from Oracle and pure-play exposure to a very cyclical, but very large, industry. Could these be overlooked? Stay tuned.

Conclusion

Taking a risk averse approach to tech investing means there’s a certain appeal for companies like Trimble that offer up multiple disruptive themes under a single umbrella. Then, after a while, you realize that’s why they can’t achieve double-digit growth. The synergies that management says will result in all this cross-selling just aren’t apparent in the fundamentals or forecasts. While the latest investor deck paints a promising picture of future growth plans, the projected growth of their combined businesses still isn’t quite there. The next step will be to examine Procure as a possible substitute for Trimble.