IBM (IBM): Buy, Sell, or Hold Post Q4 Earnings?

IBM has been treading water for the past six months, recording a small loss of 1.6% while holding steady at $252.87.

Is there a buying opportunity in IBM, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is IBM Not Exciting?

We're swiping left on IBM for now. Here are two reasons you should be careful with IBM and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, IBM grew its sales at a mediocre 4.1% compounded annual growth rate. This fell short of our benchmark for the business services sector.

2. EPS Barely Growing

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

IBM’s unimpressive 5.9% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Final Judgment

IBM isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 20.8× forward P/E (or $252.87 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Would Buy Instead of IBM

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