IBM (NYSE:IBM) in a Lot of Trouble.
IBM (NYSE:IBM) is going through a continuous fall. Its share price has fallen by nearly 15 % and is reaching its four year lows. It seems that IBM lacks guidance and therefore its future seems doubtable. Thequestion that arises here is to buy IBM shares or not as the shares are available at a very low price. No matter what but the IBM (NYSE:IBM) shares are being traded at a very attractive price with a price earnings ratio of just about 10 and a forward PE ratio of only 9.6. IBM (NYSE:IBM) doesn’t yield the best dividends but still it has a dividend yield of 2.7% which is enough to attract the investors.
IBM price sales ratio and IBM book ratios are around 1.6 and these are comparatively lower compared to other Capital Technological companies’ such as Microsoft and Oracle. This is not a new thing for IBM (NYSE:IBM) as its prices have remained at a lower level for a long time and a declinein share price has led its valuation to decline further. The reason that most critics blame for this continuous decline are that IBM lacks organic growth.
Stanley Druckenmiller Hedge fund legend made similar comments to the IBM’s progress and said that IBM is using financial engineering to raise its share price rather than investing in its business itself and therefore Billionaire Mark Cuban also said that IBM is no longer a technology. What these critics are saying is actually based on facts as last quarter IBM was only able to generate $22.4billion of revenue whereas in the same quarter in 2008 the revenue it generated was$25.3 billion.
It is clear that if IBM (NYSE:IBM) has to achieve a higher revenue and more success then it will have to change its ways. Even after all this IBM (NYSE:IBM) is still able to boost its earnings per share by aggressively buying back on its stocks and this policy is good for IBM (NYSE:IBM) only at the time IBM has agood cash flow and it had a cash flow of $2.2 billion last quarter and therefore it is a god strategy for now as IBM currently has a good cash flow.
The situation will be much more interesting if IBM (NYSE:IBM) has a new management or if IBM’s strategy changes due to a large investor. It currently seems the latter option would take place and only time will tell what happens next. What IBM could do now is sale off some of its product lines, to generate revenue as well as to decrease upon its losses. IBM’s cloud, security systems and mobile software are its growth segments and to promote their growth further IBM (NYSE:IBM) has given this incentive that if these departments perform better then they will be rewarded for it.
IBM (NYSE:IBM) has performed just as the critics told and there seems to be nothing much in IBM except its cheap price and its good cash flow. Although if some active investors take part in the company then it will be an interesting situation to see and who knows IBM might even succeed.