Wednesday, 29 April 2020

Analysis of IBM 2020

Logo of IBM 2018

Company: IBM

ISIN US4592001014 | WKN 851399

Business: An American IT service company. They are currently standing on six pillars: Cloud & Cognitive Software, Global Business Services, Global Technology Services, Systems, Global Financing and finally Other

Active: World wide making sales in over 170 countries.

P/E: 12.0

To find out more regarding IBM then please click on Analysis of IBM 2018.

The P/E for IBM is very acceptable with 12.0 but the P/B is bad with 5.4 which gives a clear no go from Graham. Earnings to sales I find acceptable with 12% for a, mainly, service company and the ROE is excellent with almost 45% but that is more due to large debt than anything else. The book to debt ratio is at 0.16 which is also very low.

In the last five years they have had a decreasing yearly revenue of -1.2% which gives us a motivated P/E of around 8 which means that they are overvalued by the market.

They spend a lot of money on R&D especially considering that around 64% of their earnings went into it which one at some point would hope would lead to something but they have done this for years without, by the look of it, anything much coming out of it not to be forgotten that they are fairly aggressive in acquisitions.

They pay a very good dividend for a US company of 5.1% which is high considering that it corresponds to 61% of their earnings. They have been very aggressive in share buy-back valued at 169 billion in the books.

Future: IT service company is definitely something for the future but as I've mentioned before this is a very slow boat to change from hardware producer to service provider. It has been a long journey and it has still not finished. Their revenue keeps going down while the margin is increasing slightly which pretty much leaves them with earnings around the 10 billion mark each year. With their aggressive acquisition strategy they will hopefully catch good ideas at an early (read cheap) state which they can directly apply globally. In the long run I still believe in IBM but I am unable to say when the turning point will come for them. 

Conclusion: Graham would not go for IBM and I will not increase my holding but continue to enjoy the good dividend.

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