Today we’re going to take a look at the well-established International Business Machines Corporation (NYSE:IBM). The company’s stock received a lot of attention from a substantial price increase on the NYSE over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine International Business Machines’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for International Business Machines
Is International Business Machines Still Cheap?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 15% below my intrinsic value, which means if you buy International Business Machines today, you’d be paying a reasonable price for it. And if you believe the company’s true value is $171.62, then there isn’t much room for the share price grow beyond what it’s currently trading. What’s more, International Business Machines’s share price may be more stable over time (relative to the market), as indicated by its low beta.
What does the future of International Business Machines look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. International Business Machines’ earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? IBM’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on IBM, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you want to dive deeper into International Business Machines, you’d also look into what risks it is currently facing. For example, International Business Machines has 5 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
If you are no longer interested in International Business Machines, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
What are the risks and opportunities for International Business Machines?
Trading at 15.4% below our estimate of its fair value
Earnings are forecast to grow 71.29% per year
Debt is not well covered by operating cash flow
Significant insider selling over the past 3 months
Profit margins (2.3%) are lower than last year (4.6%)
Large one-off items impacting financial results
View all Risks and Rewards
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.