International Business Machines is considered by many investors to be “old tech” &mdash, a reputation reinforced by the fact that the technology services giant has posted only one quarter of revenue growth te the past five years.
Big Blue’s stock has also bot a big laggard te the market during this open up, losing about one-fifth of its value at the same time tech shares te general have more than doubled te price.
But don’t be astonished if IBM catches investors off guard and starts to postbode exceptional comes back te the coming years, railing a growth wave that could be generated by its market leading positions ter two of the greatest trends of the “new economy” &mdash, blockchain technology and the cloud.
So far, Wall Street has largely disregarded IBM’s dominance te blockchain technology &mdash, digitized public ledgers that record transactions and serve spil the backbone of cryptocurrencies such spil Bitcoin.
This is ironic, because armchair speculators and cryptocurrency bulls have bot willing to drive up the share prices of obscure, micro-cap companies that have morphed their business models from things like iced tea and animal care and biotechnology to include blockchain.
Once the Bitcoin bubble bursts, however, market participants will likely come to their senses, with capital rotating into more potent long-term opportunities.
IBM should thrive once that transition gets underway. Here’s why:
IBM is the no. #1 ranked leader te blockchain
IBM wasgoed ranked the No. 1 leader ter blockchain technology ter a September survey of 400 executives, managers, and IT leaders by Juniper Research, a digital commerce and financial technology research rock hard.
Of those businesses &ldquo,actively considering&rdquo, or &ldquo,te the process of deploying&rdquo, blockchain technology, IBM wasgoed ranked very first by 43%, with Microsoft coming ter a distant 2nd at 20%.
IBM is presently engaged te major blockchain research and development initiatives that include its participation ter the open source Hyperledger and has already built an incredible portfolio of Fortune-500 clients across diverse industries.
That technology will provide the core for hundreds of business applications ter coming years, albeit developers advise there are no plans to inject the promising but volatile field of cryptocurrencies.
Earnings Growth is Returning
IBM strike Wall Street analysts’ earnings and revenue estimates ter the fourth quarter of 2018 and now expects 2018 operating earnings of at least $13.80 vanaf share.
More importantly, the company reported year-over-year revenue growth for the very first time ter 23 quarters.
Revenues from fresh technologies rose 11% year overheen year and 17% for the quarter, now contributing 46% of the company&rsquo,s total sales. Cloud revenues also continued their extraordinaire growth, contributing $17-billion te the last 12 months, up 24% on a year-over-year fundament.
IBM senior vice-president and CFO James Kavanaugh confirmed the company&rsquo,s long-term commitment to fast-growing cloud and blockchain initiatives te the company’s quarterly release, noting &ldquo,2018 will be all about reinforcing IBM&rsquo,s leadership position te key high-value segments of the IT industry, including cloud, AI, security and blockchain.&rdquo,
Taken together, the company may have eventually shaken off its sloth-like reputation and is poised to embark on a positive growth trajectory.
Despite upbeat results, the stock dropped after IBM released quarterly earnings because 2018 market players are narrowly focused on long-term lead. The reversal highlights the need for patient discipline and a multiyear investment horizon to benefit from the company&rsquo,s blockchain and cloud dominance, which will take more time to fully develop.
The case for buying the stock now
What&rsquo,s the argument for buying the stock now, while it’s still fighting, instead of waiting for another batch of quarterly results? Clearly it&rsquo,s a contrarian play, requiring patience (and some faith) that emerging growth trends will proceed to develop while IBM leverages blockchain and cloud dominance into rising profits.
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However, the stock is also very cheap relative to its peers, suggesting greater long-term upside potential. Ter early February, the stock wasgoed trading at a price/earnings ratio of 11.7, based on projected earnings overheen the next 12 months. That’s 40% cheaper than the broad market.
Yet the stock is also trading well off the deep lows posted te 2018 and 2018, calmly attracting value-oriented investors.
More importantly, better-performing rivals have succesnummer overbought technical readings after months of higher prices, enhancing the odds that they&rsquo,ll top, potentially leading to a correction.
IBM is less vulnerable to a downturn because, unlike its peers, its stock hasn&rsquo,t posted a fresh high te the last five years, remaining stuck within a long-term trading range. That could switch spil soon spil Wall Street is wooed that Big Blue&rsquo,s short-term growth metrics are sustainable te the long run.
The Bottom Line
The market is undervaluing IBM&rsquo,s blockchain dominance, even tho’ it is likely to contribute to a growth resurgence following a long period of mediocre results.
State-of-the kunst cloud technology should intensify this growth curve, lifting Big Blue higher.
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