Margins matter. The more IBM
Here's the current margin snapshot for IBM and some of its sector and industry peers and direct competitors.
TTM Gross Margin
TTM Operating Margin
TTM Net Margin
Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
Unfortunately, that table doesn't tell us much about where IBM has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for IBM over the past few years.
Source: Capital IQ, a division of Standard & Poor's. Dollar amounts in millions. FY= fiscal year. TTM = trailing 12 months.
Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.
Source: Capital IQ, a division of Standard & Poor's. Dollar amounts in millions. FQ = fiscal quarter.
Here's how the stats break down:
- Over the past five years, gross margin peaked at 46.1% and averaged 44.0%. Operating margin peaked at 20.0% and averaged 16.9%. Net margin peaked at 14.9% and averaged 12.3%.
- TTM gross margin is 46.4%, 240 basis points better than the five-year average. TTM operating margin is 20.0%, 310 basis points better than the five-year average. TTM net margin is 14.7%, 240 basis points better than the five-year average.
With recent TTM operating margins exceeding historical averages, IBM looks like it is doing fine.
If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. To stay ahead, learn more about how I use analysis like this to help me uncover the best returns in the stock market. Got an opinion on the margins at IBM? Let us know in the comments below.