IBM (IBM -0.29%) shares have hit a record high, up 68% over the past year. Some investors worry the stock might now be overvalued.
This view may miss IBM’s shift from traditional hardware to software and hybrid cloud solutions, driven by strong demand for its AI capabilities. As a result, IBM is seeing increased earnings and cash flow, leading to a brighter long-term outlook.
Given these factors, IBM stock could still be a good value.
IBM Value in Tech Sector
IBM has a price-to-free-cash-flow ratio of 18, which compares its $215.2 billion market cap to $12.3 billion in cash flow generated last year. This suggests IBM is relatively cheap compared to “Magnificent Seven” stocks like Amazon and Microsoft, which average over 40. Additionally, it offers a strong 2.9% dividend yield.
Data by YCharts.
Future of IBM Stock
No single metric defines if a stock is cheap or expensive. The company’s ability to execute its strategy and grow profitably is crucial for future performance.
Fortunately, IBM is well-positioned to maintain its recent success. It has reestablished itself as a leading tech company, capable of rewarding shareholders in the long term.
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