We have been critics of Big Blue, otherwise known as International Business Machines Corp (NYSE:IBM), since 2012. IBM stock has been nothing shy of a great short sell, and a complete pain in Warren Buffett’s ass. Nonetheless, for all the doom and gloom reports, and IBM’s inability to re-establish revenue growth, many were starting to take bets on IBM stock as recently as January.
However, IBM stock has since fallen from a peak of more than $180 to $150. The cause is an illusion that the company has peaked, or has fallen back after getting within inches of turning the corner to year-over-year revenue growth. Importantly, I saw “illusion”, because based on the following chart, Big Blue might actually still be “on pace” for a recovery.
(Click on image to enlarge)
Two-quarters ago International Business Machines Corp. posted third-quarter earnings that showed a year-over-year decline in revenue of just 0.28%. It marked the fifth consecutive quarter of accelerated growth, albeit a decline. In response, IBM stock trended higher.
Then, International Business Machines Corp. produced quarters where revenue fell 1.3% and 2.8%, respectively. Clearly, that’s two steps back.
The problem is year-over-year performance can be misleading. The second and third quarters of 2015 were about as bad as it gets for International Business Machines Corp. Therefore, IBM stock owners should have expected improved performance and near top-line growth in the same quarters of 2016.
Meanwhile, the fourth quarter of 2015 and the first quarter of 2016 was different. That was right in the midst of IBM’s recovery, which can be seen in the trend-line above. Consequently, the year-over-year period was more difficult.
That said, one look at International Business Machines Corp. bi-annual revenue growth chart illustrates that the company is still trending in the right direction. By looking at the bi-annual performance you can often remove the element of a strong or weak quarter in the comparable period as a misleading factor.
Based on this specific chart, International Business Machines Corp. is still trending in the right direction. Is it an illusion? Will IBM stall before crossing over to growth? Who knows, but for those taking strong bets against IBM stock based on the last two-quarters, it’s very likely you will be sorry if the trend holds up. In our opinion, IBM stock is un-investable, an outlook that is certain to change one way or the other, soon.
