Digging Into IBM's Discount

The European View profile picture
The European View
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Summary

  • The market offers investors IBM straight with discount.
  • As is often the case with particularly low prices, investors should look closely at what value they are getting for a price.
  • That said, IBM offers some value. Long-term and patient investors could benefit from this. Because sometimes even the cheap wine tastes good.

Introduction

Fundamentally, IBM (NYSE:IBM) is relatively cheap. This is all the more true if you take historical multiples into account. With shares, however, it is the same as with wines or a whiskey. What is cheap is not necessarily good. In fact, there are reasons why the market offers IBM at a hefty discount. But if you take a closer look, you can still see that IBM offers its investors some value. For long-term investors who are patient, IBM could therefore still be an interesting investment. So it's time to dig deeper into IBM's discount.

Strong discount

Fundamentally speaking, IBM is extremely undervalued. You can see that from the many multiples. If you look at the 3 or 5-year median P/E ratio, IBM could theoretically have an upside potential of more than 30 percent.

ChartData by YCharts

The price/book value ratio also indicates a significant undervaluation.

ChartData by YCharts

We can continue to play this game with all other multiples such as Price/FCF and historical dividend yields. But the problem is that this discount to the historical multiples has its reasons, which we will look at below.

A disappointing performance on many levels

The discount with which the market offers investors IBM has, of course, its reasons. Many investors simply did not like the disappointing development of the company, so they turned their backs on IBM.

This is very well illustrated by the development of revenue. Yes, there were a few quarters now and then where IBM was able to grow a little bit. But if you look at the development over a longer period of time, this does not spread much joy. So while the high-flyers of the tech and cloud scene posted enormous revenue gains, IBM on the other hand, shrank.

ChartData by YCharts

The picture becomes even

ChartData by YCharts

This article was written by

The European View profile picture
12.97K Followers
Runner of the TEV Blog | Lawyer For Competition Law And Antitrust | Private InvestorI am a long-term oriented investor and in my early thirties. I hold a law degree and a doctor in law and love investing and talking about my and others' investments. I regularly write about my research and investments on various investor platforms and on the TEV Blog. Living and working in Europe in an international law firm as a lawyer for antitrust & competition, I may have another view on American companies, especially when it comes to the reputation of a company or possible alternatives here in Europe. Hence, I try to build a diversified portfolio not only with American blue chips but also with smaller and maybe hidden European Champions. Given that, I am very sensitive and close to the political and economic fundamental environment in Europe. My readers benefit from this. When it was foreseeable that Qualcomm would be fined by the European Commission, I calculated the exact amount in advance and was able to inform my readers about it. The same applies to the European Commission's first interim measures against Broadcom, which were the first in two decades. Furthermore, I was the first analyst (to my best knowledge), who predicted without any doubts a dividend cut by Deutsche Telekom. **My articles represent my opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions.**

Disclosure: I am/we are long IBM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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