HCP - IBM Stock Alert: Why Investors Should Avoid This Tech Laggard
2024-06-05 06:00:00 ET
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With its share price essentially flat on the year, IBM (NYSE: IBM ) remains a value trap that investors should avoid. IBM stock is up 2% since 2024, but trailing behind the S&P 500 and Nasdaq .
Today, IBM stock is trading 20% lower than where it was a decade ago. The company and its shares remain in long-term decline with several turnaround efforts having failed to improve performance .
Another Acquisition
IBM’s latest attempt to turn its fortunes around involves the acquisition of cloud software maker HashiCorp (NASDAQ: HCP ) for $6.4 billion. IBM said that it will pay $35 per share in cash for HashiCorp and that it expects the deal to be finalized by year’s end.
The acquisition will be accretive to IBM’s earnings in the first full year after it closes. While IBM did its best to trumpet the purchase of HashiCorp, investors gave the deal a resounding thumbs down, sending IBM stock tumbling 9% on the news.
HashiCorp is the latest acquisition executed by IBM as it tries to improve its performance by purchasing companies that can give it new products and services.
In 2019, IBM acquired Red Hat for $34 billion . IBM now sells Red Hat’s version of the Linux operating system for use on public cloud systems. Like HashiCorp, Red Hat was expected to bolster IBM’s financial results. But the promised benefits have failed to materialize.
Disappointing Results
At the same time that the HashiCorp acquisition was announced at the end of April, IBM reported mixed first-quarter financial results . Notably, IBM missed its revenue target for the period. The company announced EPS of $1.68, which beat analyst forecasts of $1.60.
However, revenue in Q1 fell short at $14.46 billion. That compared to $14.55 billion expected on Wall Street. It was IBM’s third revenue miss in the last five quarters.
Revenue from software sales totaled $5.90 billion in Q1, up 6% from a year ago but below the $5.96 billion expected amongst analysts.
Revenue from the information technology consulting side of the business amounted to $5.19 billion, just under the $5.20 billion expected on Wall Street.
Currently, 14 professional analysts have a consensus “hold” rating on IBM stock. Only five of the 14 analysts rate IBM stock a buy.
Sell IBM Stock
During the 1970s and 1980s, IBM was the leading technology stock. It was the Nvidia (NASDAQ: NVDA ) of its day. But that was 40 years ago and a lot has changed over the decades.
Sadly, IBM has lost its way and its share price has struggled for more than 10 years. Expensive acquisitions and repeated turnaround strategies have done little to improve the situation and IBM remains a laggard among tech stocks .
For these reasons, the company is best to be avoided. IBM stock is not a buy .
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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