Should You Buy, Sell, or Hold International Business Machines Stock?

International Business Machines (NYSE:IBM) stock has fallen by 15% in a month, underperforming the S&P 500, which rose 2% during the same period. This decline is largely due to the company’s recent quarterly report, which showed weaker-than-expected sales in its software segment. This miss was particularly concerning to investors who had become increasingly optimistic about this part of the business.

Currently trading around $240, a key question is whether there’s room for growth after this recent decline. We believe there is.

Our conclusion is based on an analysis of IBM’s current valuation compared to its recent operating performance and financial health. Our assessment across key areas—growth, profitability, financial stability, and resilience to downturns—indicates that the company has a good operating performance and financial condition. This is reflected in its current moderate valuation.

However, given IBM’s ongoing efforts to improve sales growth and its leadership in emerging technologies like quantum computing, we believe a higher valuation multiple is justified. We’ll explore this in more detail in the following sections.

That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative — having outperformed the S&P 500 and generated returns exceeding 91% since its inception. Separately, see – UnitedHealth: What’s Happening With UNH Stock?

Image by Curtis Parfitt-Ford from Pixabay

How Does International Business Machines’ Valuation Look vs. The S&P 500?

Going by what you pay per dollar of sales or profit, IBM stock looks reasonably priced compared to the broader market.

• International Business Machines has a price-to-sales (P/S) ratio of 3.5 vs. a figure of 3.2 for the S&P 500
• Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 19.1 compared to 21.9 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 38.2 vs. the benchmark’s 23.6

How Have International Business Machines’ Revenues Grown Over Recent Years?

International Business Machines’ Revenues have seen a moderate growth over recent years.

• International Business Machines has seen its top line grow at an average rate of 2.4% over the last 3 years (vs. increase of 5.7% for S&P 500)
• Its revenues have grown 2.7% from $62 Bil to $64 Bil in the last 12 months (vs. growth of 5.0% for S&P 500)
• Also, its quarterly revenues grew 7.7% to $17 Bil in the most recent quarter from $16 Bil a year ago (vs. 5.2% improvement for S&P 500)

How Profitable Is International Business Machines?

International Business Machines’ profit margins are around the median level for companies in the Trefis coverage universe.

• International Business Machines’ Operating Income over the last four quarters was $11 Bil, which represents a moderate Operating Margin of 17.1% (vs. 18.6% for S&P 500)
• International Business Machines’ Operating Cash Flow (OCF) over this period was $13 Bil, pointing to a high OCF Margin of 20.7% (vs. 20.3% for S&P 500)
• For the last four-quarter period, International Business Machines’ Net Income was $5.8 Bil — indicating a poor Net Income Margin of 9.1% (vs. 12.7% for S&P 500)

Does International Business Machines Look Financially Stable?

International Business Machines’ balance sheet looks strong.

• International Business Machines’ Debt figure was $68 Bil at the end of the most recent quarter, while its market capitalization is $223 Bil (as of 8/18/2025). This implies a strong Debt-to-Equity Ratio of 30.4% (vs. 21.4% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $15 Bil of the $149 Bil in Total Assets for International Business Machines.  This yields a strong Cash-to-Assets Ratio of 10.4% (vs. 6.9% for S&P 500)

How Resilient Is IBM Stock During A Downturn?

IBM stock has been more resilient than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on IBM stock? Our dashboard – IBM Lost 14% In A Month. Do You Buy Or Wait? — has a detailed analysis of how the stock performed during and after previous market crashes.

Inflation Shock (2022)

• IBM stock fell 20.2% from a high of $145.21 on 11 June 2021 to $115.81 on 26 November 2021, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 17 November 2022
• Since then, the stock has increased to a high of $294.78 on 30 June 2025 and currently trades at around $240

COVID-19 Pandemic (2020)

• IBM stock fell 39.0% from a high of $149.08 on 12 February 2020 to $90.97 on 23 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 22 November 2022

Global Financial Crisis (2008)

• IBM stock fell 44.8% from a high of $124.79 on 22 July 2008 to $68.86 on 20 November 2008, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 23 December 2009

Putting All The Pieces Together: What It Means For IBM Stock

In summary, International Business Machines’ performance across the parameters detailed above are as follows:

• Growth: Moderate
• Profitability: Moderate
• Financial Stability: Strong
• Downturn Resilience: Strong
• Overall: Good

The Verdict

While International Business Machines (IBM) has performed well in the key areas we analyzed, we believe its current valuation doesn’t fully capture its future potential.

Surely, the stock’s current price-to-sales multiple of 3.5 is already above its three-year average of 2.5, but we believe there is still room for further growth. This is due to the rising enterprise demand for its Watson AI solutions and hybrid cloud infrastructure, which connects on-premise and cloud systems. Looking further ahead, quantum computing is also expected to become a major driver of IBM’s business growth.

Of course, there are risks. Fierce competition in the cloud services market and a decline in its legacy businesses could limit this growth. Furthermore, an economic downturn could negatively affect the stock’s performance. See – Buy or fear IBM stock – for more details.

Despite these risks, we believe that for investors with a 3-5 year outlook, buying IBM during its current dip will likely result in healthy long-term gains. Still, it’s important to remember the significant risk that comes with investing in a single stock or a small number of stocks.

For a more diversified approach, consider the Trefis High Quality (HQ) Portfolio. This collection of 30 stocks has a track record of outperforming the S&P 500 over the last four years by providing better returns with less risk, resulting in a smoother ride for investors, as evident in HQ Portfolio performance metrics.

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