Jim Bach: It’s been a wild ride for International Business Machines Corp. (NYSE:IBM) stock this year.
Wall Street simply doesn’t know what to do with this enterprise solutions giant.
IBM stock has traded as low as $151.55 in late January and as high as $174.40 in late April. And Chief Executive Officer Virginia “Ginni” Rometty has yet to bring IBM stock back to $180, where it was trading before she made a devastating announcement last October that walked back an earnings pledge five years in the works.
Now investors are wondering “should I Buy IBM stock now?” given that it has fallen about 4% in the last month. You may be thinking now is a time to buy it on the cheap.
Before putting in a buy order, however, here’s what you need to know about IBM stock…
What to Consider Before You Buy IBM Stock
Why is IBM stock falling right now? There a couple ways to look at that question.
There is general ill will within some investor circles over IBM stock. It goes back to 2013.
That’s when IBM lost a bid to handle cloud services for the Central Intelligence Agency to Amazon.com Inc. (Nasdaq: AMZN).
Here was a tech centenarian with a history of delivering unmatched enterprise services to the U.S. government and Fortune 100 companies, losing a cloud contract to a company that’s main line of business is online vending. Amazon Web Services (AWS), Amazon’s cloud segment, is not well-known among the less sophisticated investors, though it is certainly one of the company’s more intriguing offerings.
This was a wake-up call for IBM. It prompted IBM to beef up its cloud offerings with the purchase of SoftLayer in 2013.
But since then, a general malaise has set in on IBM stock. The lost CIA bid has been largely responsible for the more than two-year 20% drop in the IBM stock price.
More recently, IBM stock has been falling for a different reason, though it is still tied to cloud.
You see, on April 23, both Microsoft Corp. (Nasdaq: MSFT) and Amazon reported earnings. Amazon broke out its cloud revenue in its reporting, and both companies, whose earnings presentations centered on their cloud segments, saw their stocks taken over by a buying frenzy.
MSFT stock was up 10.5% after earnings. AMZN stock jumped 14.1%.
While these were two exciting developments for these companies, Wall Street got ahead of itself.
This rally also benefitted IBM stock, which was up 3%. Never mind that IBM reported earnings on April 21- two days before – and its 12th straight quarter of falling revenue sent the stock down 1.1% that day.
Investors simply couldn’t get enough of cloud and bought any company that had a segment – regardless of how it operated in the space and whether it had a winning strategy or not.
IBM stock soared as high as $174.40. It has since fallen back down to around $167.
This most recent IBM stock price decline can be attributed to reality setting in. IBM isn’t Amazon, and it shouldn’t have gotten a boost from the good news at that company when you take into account that Amazon’s cloud strategy is vastly different from IBM’s.
For solid stocks, this recent pullback would be a time to buy. So is that the case with IBM?
Should I Buy IBM Stock?
No. Not now at least.
We’re not saying steer clear because IBM is a lost cause on the cloud front or because it’s losing in the space.
If anything, it’s losing the cloud battle in areas where it isn’t even trying to compete.
The fact that IBM stock got a pick-me-up as a result of Amazon earnings shows that Wall Street doesn’t understand IBM’s cloud strategy. That’s going to ensure the stock is volatile for some time to come as traders try to pinpoint its actual market value.