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The company is shifting its revenue streams toward higher-margin software and recurring subscriptions and services.
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The industrial software stock trades at a discount to its peers.
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Artificial intelligence will help sustain the company’s potential double-digit growth rate.
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10 stocks we like better than Trimble ›
When does a hardware company become a software company? This is a good question, especially if Tianbao (NASDAQ: TRMB)a company specializing in positioning and workflow technologies. Although its software, services and recurring revenue now make up nearly 80% of its revenue, the stock trades at a discount to its software peers due to its legacy hardware business. This is why Trimble is undervalued by up to 30%.
Trimble should be trading at a premium to its peers, not at a discount. This will reflect margin expansion and increased free cash flow (FCF) generation opportunities from the continued shift toward recurring revenue from software subscriptions and services. I’ll get to the valuation argument right away, but first, a word about future growth opportunities.
To be clear, Trimble’s hardware will always be part of its business. The company’s roots lie in delivering precision positioning hardware products to customers, particularly in the construction, infrastructure, geospatial, mapping and transportation sectors.
However, its future lies in connecting the physical and digital worlds, creating a common data environment that allows project designers and project managers to see the same thing in real time and collaborate immediately. One example is a structural engineer remotely monitoring the real-time positioning of structural elements such as beams, columns or slabs in a construction project.
The opportunity to use Trimble technology to prevent waste and ensure on-time delivery of construction/infrastructure projects should not be underestimated. More timely delivery of infrastructure projects such as rail or highways can save significant amounts of money.
The software’s benefits will be further enhanced by embedding artificial intelligence (AI) into its solutions, allowing customers to streamline their daily workflows by automating repetitive tasks, analyzing workflows such as that of vehicles in a transportation fleet, and creating actionable insights.
The key metric Trimble needs to follow is annualized recurring revenue (ARR), which management expects to grow at annual rates in the double digits to mid-teens through 2027. An increase in ARR will lead to an increase in margins and cash flow generation. Wall Street analysts agree that Trimble’s free cash flow will grow from about $750 million in adjusted 2025 to $1 billion in 2027, an annual growth rate of 15%.
