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Why International Business Machines Corp. Crashed Today

By Ashraf Eassa – Oct 20, 2014 at 7:30PM

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Here's why shares of IBM crashed today.

What: Shares of International Business Machines (IBM 0.06%) were down nearly 9% during intra-day trading following the company's announcement of worse-than-expected results.

For its third quarter, IBM reported earnings-per-share of $3.68, which missed consensus by $0.64. Revenue came in at $22.4 billion, down 4% year-over-year, and missing consensus of $23.37 billion. Bloomberg reports that the company expects earnings-per-share for the year to be "down 2%-4% from $16.64 in 2013," implying a range of $15.97 to $16.31, badly missing consensus of $17.87 .

So What: IBM reported in its earnings presentation slides that its third quarter results were negatively affected by weak software revenue, "insufficient productivity in Services," as well as a tough operating environment (this includes, according to IBM, currency headwinds).

IBM also withdrew its 2015 guidance of "at least $20 Operating EPS" and plans to provide an updated 2015 outlook in January.

Finally, the company noted in its earnings presentation slide deck that it is "accelerating implementation of [its] strategy" and in the meantime will try to "remix" its business to "higher value," manage the company "for the long-term," and "return significant value to shareholders."

Now what: IBM's performance this quarter is anything but encouraging, so it's not surprising to see the stock trade down following the results.

The good news is that the stock is quite cheap at just over 10 times the company's revised earnings-per-share guidance. That said, until the company can start growing revenue again, the stock may seem more like a "value trap" than a bargain. While Warren Buffett does own IBM shares, he's likely racking up losses and investors may need to look elsewhere for a compelling tech stock to buy -- at least for now.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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International Business Machines Stock Quote
International Business Machines
$147.50 (0.06%) $0.09

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