IBM (IBM) is down to a 52-week low. After Big Blue reported earnings last quarter, the focus was once again on revenue growth. Last quarter, sales were down 4% from a year-ago. That was the sixth consecutive quarter that sales were down from the year-ago period. Now profit estimates declined too. Everybody is down on IBM, but I like it here.
One Year Chart
I think the big thing is IBM is selling for only 10 times earnings. I think whenever you get a stock with a P/E below 12 that eventually the P/E will get back to 12.
Quarterly profit growth (along the bottom) has been solid. The company manages itself well, and also buys back stock which helps EPS grow even when sales aren’t. Estimates show 12% and 10% profit growth coming the next two quarters, which ain’t bad. But these figures just got reduced, so this may be optimistic.
Fair Value
I think if business fundamentals can just stop declining that the negative momentum can slow. If IBM gets an uptick in business the stock can easily get to 12 times earnings, which right now is 25% higher than the current price.
Sharek’s Take
IBM is a solid guy for value investors. It’s real cheap and I think the stock’s got huge upside if you’re willing to wait a year or two. But this isn’t a great growth stock because sales have declined for two straight years, so I may keep IBM on my radar to try to find something with a little more octane.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
