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.
Relevant Articles
  1. Up 21% In The Last Six Months, Will IBM Stock See Further Gains Post Q4?
  2. IBM Stock Gains 10% Over The Last Month On Strong Earnings, AI Progress. What’s Next?
  3. With Stock Down 1% YTD, Will Lackluster IT Spending Impact IBM’s Q3 Results?
  4. How Will IBM Stock Trend Post Q2 Earnings?
  5. How Will IBM Stock Trend Post Q1 Earnings?
  6. Forecast Of The Day: IBM Infrastructure Revenues

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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