IBM (IBM) is one of the most watched stocks by visitors to Zacks.com lately. Therefore, it may be a good idea to review some of the factors that can affect the short-term performance of stocks.
Over the past month, shares of this technology and consulting company have returned +5.7%, compared to a change of +1.8% for the composite Zacks S&P 500. During this period, the Zacks Computer industry – Integrated Systems, in which IBM is located, up to +1.6%. The key question now is: What could be the future direction of the stock?
While press releases or rumors of a substantial change in a company’s business outlook typically cause its stock to “trend” and lead to an immediate price change, there are always a few fundamental facts that ultimately dominate decision-making. buy and hold decisions.
Changes to estimates of earnings
Rather than focusing on anything else, we at Zacks make it a priority to assess the change in a company’s earnings forecast. This is because we believe that the fair value of your shares is determined by the present value of your future stream of earnings.
Our analysis is essentially based on how short-side analysts who cover stocks revise their earnings estimates to account for the latest trading trends. As a company’s earnings estimates increase, the fair value of its stock also increases. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, causing the price to rise. Hence, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, IBM is expected to post earnings of $3.57 per share, indicating a +6.6% change from the previous quarter. The Zacks Consensus Estimate was unchanged over the last 30 days.
For the current fiscal year, the consensus earnings estimate of $9.12 points to a +15% change from the prior year. For the past 30 days, this estimate has not changed.
For the upcoming fiscal year, the consensus earnings estimate of $9.69 indicates a change of +6.2% from what IBM expected to report a year ago. The estimate has not changed in the last month.
With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s near-term price direction by effectively harnessing the power of earnings estimate revisions. . Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, IBM is ranked Zacks Rank #3 (Hold).
The following chart shows the evolution of the company’s 12-month consensus EPS estimate:
Last reported results and upset history
IBM reported revenue of $14.11 billion in the last reported quarter, representing a year-over-year change of -19.9%. EPS of $1.81 for the same period compared to $2.52 a year ago.
Compared to the Zacks Consensus Estimate of $13.73 billion, the reported revenue represents a surprise of +2.72%. The EPS surprise was +1.69%.
In the past four quarters, IBM has beaten consensus EPS estimates three times. The company beat consensus revenue estimates three times during this period.
Without considering the valuation of a stock, no investment decision can be efficient. When predicting the future performance of a stock’s price, it is crucial to determine whether the current price correctly reflects the underlying company’s intrinsic value and the company’s growth prospects.
By comparing the current values of a company’s valuation multiples, such as price-to-sales (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its own historical values. help determine whether your stocks are overvalued, overvalued or undervalued. Comparing the company relative to its peers on these parameters gives a good idea of the reasonableness of the share price.
The Zacks Value Style Score (part of the Zacks Style Score system), which pays close attention to traditional and unconventional valuation metrics to rate stocks from A to F (An is better than B; a B is better than a C, etc. ), is quite useful to identify whether a share is overvalued, correctly priced, or temporarily undervalued.
IBM has a B rating on this front, indicating that it trades at a discount to its peers. Click here to see the values of some of the valuation metrics that drove this note.
The facts discussed here and many other information on Zacks.com can help determine whether the market buzz about IBM is worth paying attention to. However, his Zacks Rank #3 suggests he may be working in line with the broader market in the short term.
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