"IBM is no longer a tech company. They have no vision. What they've evolved into is a company that does [arbitrage] on acquisitions. It's stock buybacks. Who is IBM anymore?" Mark Cuban
Thesis
From a distance, International Business Machines (NYSE:IBM) seems like an ideal buy for contrarian investors. It is a storied company that has been engrained in corporate America for decades, it is deeply undervalued, it has increased dividends for 22 consecutive years, it has an excellent yield of more than 4.2%, and its recent investments in strategic imperatives appear to be working. However, a closer examination of the company shows a company that is struggling. Its revenues are falling, margins are thinning, its legacy business is shrinking, and its executive compensation is a joke. In this article, I will argue that IBM has been left behind, is slow to change, and should be avoided.
Introduction
In May 2017, I wrote an article on IBM where I argued that the 'big blue was fading'. I argued that its revenues, margins, assets, earnings, and returns have been declining. I also argued that the company had significant similarities to General Electric (GE), where glowing words from the management does not reflect in the income statement. Sadly, more than a year later, things have not improved. They will get worse.
Track Record of Underperformance
To understand how far IBM has fallen, a good starting point is to compare its performance with its peer companies. For this analysis, I will compare it with its closest competitors: Apple (AAPL), Microsoft (MSFT), Cisco (CSCO), Intel (INTC), and Oracle (ORCL). I have intentionally left newer peers like Alphabet (GOOG) (GOOGL), and Amazon (AMZN).
The table below summarizes the stock performance of these companies in the past 1 year, 3 years, 5 years, and 10 years.
YTD |
