Do Strong Q1 Results Set IBM Stock Up For A Rally?

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IBM: International Business Machines logo
IBM
International Business Machines

IBM stock (NYSE:IBM) has risen by 9% over the last week (five trading days), meaningfully outperforming the S&P 500, which remains down by almost 3% over the same period. The stock also remains up by almost 8% over the last month (around 21 trading days). There are a couple of factors that have helped IBM stock outperform in recent weeks. Firstly, IBM is growing once again after several years of revenue declines, following the spin-off of its low-margin information-technology services business. IBM posted a stronger than expected set of Q1 2022 results, with revenue growing by 8% year-over-year to $14.2 billion, and adjusted earnings per share rising 25% year-over-year to $1.40. Growth was driven primarily by the company’s software and consulting business. Software sales during Q1 rose 12.3% year-over-year to $5.8 billion while consulting sales rose 13% to $4.8 billion. Separately, with monetary policy getting tighter and the U.S. Federal Reserve considering more aggressive interest rate hikes to rein in inflation, investors have been moving out of high-multiple growth stocks toward value picks and this appears to be helping IBM stock, which trades at just about 14x forward earnings.

However, now that IBM stock has seen a rise of about 8% over the last month, will it continue its upward trajectory in the near term, or is a decline imminent? Going by historical performance, there is a roughly equal change a rise or decline in IBM stock over the next monthOut of 185 instances in the last ten years that IBM stock saw a twenty-one-day rise of 8% or more, 97 of them resulted in IBM stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 97 out of 185, or only about a 52% chance of a rise in IBM stock over the coming month. See our analysis on IBM Chance of A Rise for more details.

Calculation of ‘Event Probability’ and ‘Chance of Rise’ using last ten years’ data

  • After moving 9.2% or more over five days, the stock rose in the next five days on 21% of the occasions.
  • After moving 7.5% or more over ten days, the stock rose in the next ten days on 54% of the occasions.
  • After moving 7.8% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 52% of the occasions.
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We estimate  IBM valuation to be around $153 per share, about 10% ahead of the current market price.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 IBM Return 6% 3% -17%
 S&P 500 Return -3% -8% 96%
 Trefis Multi-Strategy Portfolio -7% -14% 239%

[1] Month-to-date and year-to-date as of 4/25/2022
[2] Cumulative total returns since the end of 2016

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