Please ensure Javascript is enabled for purposes of website accessibility

Why IBM Stock Gained 6.2% in 2021

By Keith Noonan – Jan 6, 2022 at 12:38PM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Will 2021 be remembered as the year things finally started to turn around for IBM?

What happened

Shares of International Business Machines (IBM 1.56%) climbed 6.2% across 2021's trading, according to data from S&P Global Market Intelligence. The tech stock gained ground thanks to positive momentum in the broader market and hopes that Big Blue is better positioned for long-term success after spinning off Kyndryl (KD 1.60%), which houses its former information technology services segment. 

IBM Chart

IBM data by YCharts

While IBM ended the year higher, it significantly underperformed the S&P 500 index. After factoring in dividend payments, Big Blue shares returned roughly 11.6% in 2021, but that still came in well below the benchmark index's total return level of 28.7%.

So what

IBM's annual revenues have fallen by roughly 30% over the last decade, and the company has delivered only one year of annual sales growth across that stretch. The table below outlines its sales performance across the four quarterly reports that it published in 2021.

Period Revenue Change (YOY)
Q4 2020 $20.4 billion (8%)
Q1 2021 $17.7 billion (2%)

Q2 2021

$18.7 billion 0%
Q3 2021 $17.6 billion (0.2%)

Data source: IBM. YOY = Year over year.

Free cash flow across the trailing 12 months did increase by roughly $300 million to $11.1 billion, but IBM's dividend payouts are currently exceeding its free cash flow generation. The company increased its dividend in April, making 2021 its 26th consecutive year with an annual payout boost.

IBM completed its Kyndryl spinoff early in November, and its stock has gained some ground following the separation. With the infrastructure services business now operating independently, IBM has lost a segment that recently accounted for roughly 25% of its revenue, but the parent company may prove to be a more effective business thanks to its more concentrated focus on cloud software and AI services. However, shareholders are still waiting for IBM's long-promised turnaround, and it faces tough competition in these categories. 

Now what

Despite the market's volatility, IBM stock has moved higher early in 2021. Its share price is up roughly 1.7% in January so far. 

IBM Chart

IBM data by YCharts

The Kyndryl spinoff will likely put the business in a better position to deliver growth, but investors should keep in mind that IBM still appears to be on track to expand at a relatively slow clip. After factoring out Kyndryl's contribution in Q3, the company's sales were up just 1.9% year over year in the period on a constant-currency basis.

With the stock trading at roughly 13 times this year's expected earnings and paying a dividend yielding roughly 4.9% at current share prices, IBM could prove relatively sturdy even if volatility continues to hit tech sector valuations broadly. That being said, this value stock is still a turnaround play, and Big Blue has a lot to prove. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.