Company: IBM
ISIN US4592001014 | WKN 851399
Business: An American IT service company. They are currently standing on six pillars and each year they are shifting things around and start reporting new areas.
Active: World wide making sales in over 170 countries.
P/E: 25.5
The P/E for IBM is far too high with 25.5 and the P/B is equally bad with 8.4 which gives a clear no go from Graham. Earnings to sales I find very low with 7% for a, mainly, service company and the ROE is excellent with almost 33% 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 -4.5% 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 over 100% 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.
They pay a good dividend of 3.8% which is not so great considering that it corresponds to 96% of their earnings. Should it really have been increased this year?
Conclusion: Graham says no and so do I. Last year I thought the turning point was there but obviously that was not the case. The P/E is one step worse, due to tax, while the P/B has improved slightly but it is still far from reasonable levels. Dividends are good but not sustainable in the long run unless there will actually be some form of increase in earnings. I will remain as a grumpy shareholder.
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