Should You Buy IBM Stock After Yesterday’s Drop?

January 21st, 2026 by Trefis Team
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IBM: International Business Machines logo
IBM
International Business Machines

The short answer? Probably not yet.

IBM stock fell 5% on January 20, 2026, caught in broader market turmoil over U.S.-Denmark tensions around Greenland and Trump’s latest tariff threats. When stocks drop like this, the natural instinct is to ask: Is this a buying opportunity?
To answer that, we need to look past the headlines and examine whether IBM is actually cheap at current levels.

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Is IBM a Bargain Now?

Not really. Even after the dip, IBM trades at a slight premium to the S&P 500 on multiple metrics:

  • Price-to-Sales: 4.4x vs. 3.3x for the S&P 500
  • Price-to-Free Cash Flow: 24.1x vs. 21.7x for the index
  • Price-to-Earnings: 36.2x vs. 24.6x for the benchmark

So you’re paying more per dollar of sales, earnings, and cash flow than the average S&P 500 company. That’s fine if the business is firing on all cylinders. But is it?

How’s the Business Actually Performing?

Here’s where things get mixed.

On revenue growth, IBM is lagging. Over the past three years, revenues grew just 2.6% annually versus 5.6% for the S&P 500. Recent trends look better – revenues climbed 4.5% over the last year to $65 billion, and the most recent quarter showed 9.1% growth. But historically, this is a slower-growth story than the broader market.

Profitability is decent but not exceptional. IBM’s operating margin sits at 17.7% (slightly below the S&P’s 18.8%), while its net margin is 12.1% (versus 13.1% for the index). Operating cash flow margin, at 20.6%, is solid and slightly above the market average.  The company generates cash, but it’s not dominating its peers.

The balance sheet, however, is rock solid. IBM carries $67 billion in debt against a $272 billion market cap – a debt-to-equity ratio of just 23.3%. It also holds $15 billion in cash, representing 10.2% of total assets. This financial stability is a genuine strength.

What About Downside Protection?

IBM has historically held up relatively well during market crashes. During the 2022 inflation shock, it fell 20.2% versus 25.4% for the S&P 500. In the 2020 COVID crash, it dropped 39% compared to the S&P’s 33.9% decline. And during the 2008 financial crisis, IBM fell 44.8% while the S&P plummeted 56.8%.

So if you’re worried about downside risk, IBM has shown more resilience than the broader market in past crises. That’s worth something.

The Bottom Line: Why We’re Not Rushing In

Let’s put this together:

  • Growth: Weak relative to the market
  • Profitability: Moderate
  • Financial Stability: Very strong
  • Downturn Resilience: Strong
  • Overall Assessment: Moderate

IBM is a moderately performing business trading at an above-market valuation. The analyst consensus price target of $309 suggests just 6% upside from current levels around $290. That’s not much margin of safety after a 5% drop.

Could we be wrong? Absolutely. IBM’s quantum computing initiatives and strong positioning in hybrid cloud and enterprise AI could justify a premium valuation if those bets pay off. The market might reward that optionality.

But from a risk-reward perspective, we’d rather wait for a deeper pullback or look at alternatives like Oracle and Broadcom that may offer better value at current prices. Sometimes the best investment decision is patience.

Also, investing in a single stock without comprehensive analysis can be risky. Consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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