While the S&P 500 is up 13.9% since June 2025, IBM (currently trading at $302.81 per share) has lagged behind, posting a return of 7%. This might have investors contemplating their next move.
Is there a buying opportunity in IBM, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Is IBM Not Exciting?
We don't have much confidence in IBM. Here are two reasons you should be careful with IBM and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, IBM grew its sales at a sluggish 1.3% compounded annual growth rate. This was below our standards.
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
IBM’s EPS grew at an unimpressive 4.2% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.3% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
IBM isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 25.5× forward P/E (or $302.81 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at one of our top software and edge computing picks.
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