This is a guest post from AmigoBulls. AmigoBulls provides original articles, research, and a stock screener primarily for stocks in the technology sector.
If anybody in the world knows value investing, it’s Warren Buffett. The Wizard of Omaha, as he’s popularly known, has often stunned the world with his prudent investments. Buffett’s approach to investing has always been along conservative lines; this is why he surprised the world when he disclosed his gigantic stake in IBM.
When a stock market titan like Buffett purchases shares worth billions of dollars, it never fails to make headlines. In 2011, Berkshire Hathaway, his holding company, bought $10.7 billion worth IBM common stock.
Well, it’s been almost 4 years since Buffett’s investment in IBM. And in this time period, Berkshire Hathaway have increased their ownership in IBM, from 5.5% in 2011 to 7.8% in 2014. But, even the greatest investors can sometimes go horribly wrong. So, it makes sense to figure out certain complexities yourself, instead of blindly following another person. Below, we’ll be looking closely into the present financial condition of IBM.
Buffett didn’t just buy IBM on a whim—he scrutinized the company’s annual reports over the last 50 years. After all, he isn’t the type to buy a firm with weak fundamentals. But in recent times, IBM stock hasn’t really fared well on the market. IBM’s Q3 and Q4 results for FY 2014 were nothing exceptional, failing to meet market expectations.
What To Expect From Past Performance
In 2011, the per-share price of IBM stock peaked at $194.56, while declining to as low as $148 at the beginning of the year. Four years later, as of Feb 23rd, 2015, each share of IBM trades at $162.91. Going by present figures, you can see that IBM trades at almost the same price that it did 4 years ago. But, these figures are unreliable indicators of the company’s actual financial health. So where does IBM really stand today?
Well, in Q4, FY 2014, IBM reported revenues of $24.1 billion, down by 4% from the same quarter last year. At the same time, however, revenues the from company’s Cloud services in FY 2014 amounted to $7 billion—up nearly 60% from the previous fiscal year. Mobile revenues more than tripled in the same time period.
Now, the financial condition of IBM presents a very mixed picture. On one hand, you have its almost-disastrous revenue performance, which hasn’t improved year-over-year in the last 11 quarters. And on the other, you have its exponentially increasing incomes from growth areas like cloud computing, mobile apps, and big data.
Is It Worth An Investment?
In his 2011 letter, Buffett said that his future stock acquisitions in IBM depended largely upon low stock prices; meaning, Berkshire Hathaway would only buy a larger percentage of the company if IBM stock prices remained below average.
And, although IBM performed poorly on the stock market in FY 2014, it still went on to yield operating earnings of $15.59 per-share, up 2% from FY 2013. For FY 2015, the company expects operating earnings of $15.75 to $16.50 a share—a reasonably optimistic figure.
Given this tech giant’s recent shift in focus from hardware manufacturing, it definitely has a lot of offer investors in the future. Buffett’s mantra has always been to never put all your eggs in one basket—and IBM definitely seems to be living up to this timeless adage.
References:
IBM Reports 2014 Fourth-Quarter and Full-Year Results
IBM Reports Earnings Today And Is Expected To Discuss A Huge Reorg
Why Warren Buffett Keeps Buying IBM
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