International Business Machines (IBM): fair value

Fair-value band

The normal range for this name runs from $184 (cheap) to $371 (expensive); it is now priced at $236.

That is 0.7σ below this name's own normal premium.

Is International Business Machines undervalued?

Fair, relative to its own history. International Business Machines trades at $236, 25% above the fair value this model estimates, but it has habitually traded 47% above fair value, and today's gap is 0.7σ below that norm, within the range it normally trades in, so the verdict is Fair: priced normally for itself, not necessarily fairly valued.

Diligence checklist

7 pass · 2 fail · 2 no data

• PASSCash actually collected from profit, last 12 months: 180%XBRL · International Business Machines gets $1.80 of real cash for every $1 of reported profit which means profits are real and not just numbers on paper. That's a good sign.
• PASSGap between paper profit and real cash: -2.8%XBRL · International Business Machines's "profit on paper" and "cash in the bank" gap is small enough to pass.
• FAILDebt compared to one year of cash earnings: 3.75xXBRL · It would take 3.75 years of earnings to clear what International Business Machines owes, net of the cash it holds. Past three years I stop treating a name as something I would buy, and past four I stop work altogether. This sits in between: not disqualifying, but the lenders have more say in how this business is run than the shareholders do.
• PASSHow much more it earns on capital than that capital costs: +3.40ppXBRL · International Business Machines earns 3.4 points more on the capital it employs than that capital costs. That clears the bar, but only just: a slightly worse year or a slightly higher cost of money and this business is running to stand still. The gap is wider than it was at the start of the window.
• FAILStock sold by executives and directors on the open market, last 6 months: $5.8MEDGAR (dealbreaker) · Thomas Robert David sold $5.8M of stock in the last 6 months, outside any pre-planned selling schedule, and $5.8M went out that way in total. My rulebook says more than $5 million of this kind of selling is disqualifying for a "long" position (buying the stock). Options being exercised, and shares held back to cover the tax on them, are not sales and I don't count them either. filing ↗
• PASSHow long the CEO has run this company: 6.5 yearsTEXT · International Business Machines's chief executive has held the job since April 6, 2020, which is 6.5 years and covers a full cycle: good years and bad ones, both on this person's record. That is long enough for the record to mean something. Time served isn't the same as doing the job well, though, so read this next to the return-on-capital line above, which covers the same years. filing ↗
• PASSProfit margin held up during the last sales slump: 50.6% vs 46.4% baseXBRL · The last time International Business Machines's revenue fell, its profit margin per unit sold only slipped a little, from about 46.4% to 50.6%. It means International Business Machines isn't being forced to cut prices to keep product moving, which is what a company with a weak competitive position has to do. This is the accounts talking, not the filing: I'm reading the 10 quarters from June 2019 to September 2021, measured against the year going into it, and a shift in what the company sold can imitate pricing power either way.
• PASSNormal profit margin across a full business cycle: FCF margin 22.8% vs 21.9% medianXBRL · International Business Machines's current cash margin (22.8%) is a bit above its long-run average (21.9%). This is a mild warning rather than a problem: don't assume today's good margin lasts forever. My valuation grows the long-run average, not the temporarily high figure. Across the window the margin ran between 14.6% in September 2022 and 35.2% in September 2021.
• N/AHow much of the stock trades on an average day: $1,388MMARKET · International Business Machines trades so much volume that this basically isn't a concern. There's no pass or fail here because the answer depends on how big a position I'd actually want to take.
• N/AShare of revenue from its single biggest customer: not establishedTEXT · I fetched and read International Business Machines's February 24, 2026 10-K but found no sentence about customer concentration. That isn't the same as the filing saying there is none: it may simply be worded in a way my search doesn't catch. Read Item 1 and the concentration-of-risk note yourself before trusting this row. filing ↗
• PASSWhether the company switched auditors in the last 2 years: noneEDGAR · Companies sometimes switch accounting auditors right before something bad is uncovered which can be a warning sign. International Business Machines hasn't changed auditors in the last 2 years, so there's no such red flag here.