Key Takeaways:
- Governance Pivot: Nagarro (NA9) is addressing investor concerns head-on, appointing KPMG as its auditor, refreshing its supervisory board, and committing to a disciplined capital allocation policy.
- Price Projection: Our model projects the stock could climb to €89 per share by December 2027.
- Expected Returns: This target implies a robust 12.2% annualized return, signaling that the market may be underappreciating the company’s operational turnaround.
- Efficiency Gains: Adjusted EBITDA margins hit a 3-year high of >17% in Q3, driven by operational discipline and AI-enhanced productivity.
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Nagarro (NA9) is a “show me” story that is starting to deliver.
The digital engineering company has faced significant skepticism regarding its governance and forecasting in the past. However, Q3 results suggest a turning point. Revenue growth accelerated to 9.4% in constant currency, and margins expanded significantly, with gross margins beating guidance by 300 basis points.
Management is also putting cash to work. They announced a plan to buy back €20 million worth of stock and extinguish 75% of treasury shares, signaling a belief that the shares are undervalued.
With the stock trading at €71.05, investors have a chance to buy into a high-growth IT services player at a valuation that still reflects past uncertainties rather than future potential.
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What the Model Says for NA9 Stock
We evaluated Nagarro’s potential through 2027, balancing the recovery in its growth rate against the need for a valuation discount relative to larger peers.
Our model signals a “Buy.” Using a forecast of 6.0% Revenue Growth (CAGR) and 11.6% Operating Margins, the model projects the stock could reach €89 by the end of 2027.
This implies a 12.2% annualized return over the next two years.
This return profile offers a solid entry point. It suggests that if Nagarro simply executes on its “moderate” growth targets and maintains current margins, the stock has double-digit upside.
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Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for NA9 stock:
1. Revenue Growth: 6.0%
Growth is stabilizing in a tough market.
While the overall IT services market remains subdued, Nagarro is winning where it counts. Q3 revenue grew 9.4% in constant currency, tracking well against guidance.
The company is pivoting sales efforts toward high-growth verticals and geographies, specifically the Middle East and Japan, while maintaining its stronghold in Germany and the U.S..
We forecast conservative revenue growth of 6.0% CAGR through 2027. This is lower than their historical double-digit rates, reflecting a prudent view of the current macro environment.
2. Operating Margins: 11.6%
The standout metric in Q3 was profitability. Adjusted EBITDA margin reached 17%, the highest level since 2022. Gross margins came in at 33.1%, significantly ahead of expectations.
Management attributes this to “deliberately improved operational efficiency” and improved utilization rates.
We project operating margins to normalize at 11.6% (EBIT), which aligns with their improved EBITDA profile while accounting for depreciation and amortization.
3. Exit P/E Multiple: 12.8x
Nagarro currently trades at roughly 12.8x earnings. This is a discount compared to global digital engineering peers, likely due to the “governance discount” the market has applied.
Our model assumes an exit multiple of 12.8x by 2027.
We chose a multiple that stays exactly flat. We are not betting on a massive re-rating. Instead, we assume that earnings growth alone will drive the stock price. If the market eventually removes the governance discount, the upside could be significantly higher (as seen in the “High” scenario).
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What Happens If Things Go Better or Worse?
The risk/reward looks asymmetric, with limited downside in the base case and massive upside if sentiment improves (these are estimates, not guaranteed returns):
- Low Case: If growth stalls completely (flat revenue), the stock could still deliver a 6.3% annual return due to buybacks and margin defense.
- Mid Case: If the company hits our moderate targets, we project a solid 10.6% annual return.
- High Case: If the “governance discount” fades and the multiple expands to 16x (closer to peers), returns could skyrocket to 17.5% annual return.
See what analysts forecast for the next 5 years for NA9 stock (Free with TIKR) >>>
How Much Upside Does Nagarro Stock Have From Here?
With TIKR’s new Valuation Model tool, you can estimate a stock’s potential share price in under a minute.
All it takes is three simple inputs:
- Revenue Growth
- Operating Margins
- Exit P/E Multiple
If you’re not sure what to enter, TIKR automatically fills in each input using analysts’ consensus estimates, giving you a quick, reliable starting point.
From there, TIKR calculates the potential share price and total returns under Bull, Base, and Bear scenarios so you can quickly see whether a stock looks undervalued or overvalued.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
