• If you are wondering whether International Business Machines at about US$245 per share is still a value opportunity or if most of the easy gains are already behind it, this article breaks down what the current price might be implying.
• The stock has recent returns of 1.1% over 7 days, a 5.3% decline over 30 days, a 15.9% decline year to date, a 13.6% gain over 1 year, and strong multi year returns. This mix of short term and longer term performance can change how investors think about both upside and downside risk.
• Recent headlines around International Business Machines have continued to focus on its role in software and services, which helps frame how investors think about what they are paying for today. Even without a single event moving the stock, the steady news flow around its core business and long term positioning often shapes expectations that feed into the share price.
• On Simply Wall St’s valuation framework, International Business Machines scores a 3 out of 6. The rest of this article will walk through how different valuation approaches view that score and then finish with a way to get a more detailed picture of what the market might be pricing in.

Approach 1: International Business Machines Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and discounting them back to today’s value using a required rate of return.

For International Business Machines, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flows in US$. The latest twelve month free cash flow sits at about $11.4b. Analyst and extrapolated projections in the model show free cash flow figures such as $15.9b in 2026 and $25.6b in 2030, with later years extending this projection path out to 2035.

When these projected cash flows are discounted back to today, Simply Wall St’s model arrives at an estimated intrinsic value of about $384.11 per share. Against a current share price of roughly $245, this implies a DCF discount of 36.2%, indicating that the stock is trading at a sizeable gap to this particular estimate of value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests International Business Machines is undervalued by 36.2%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.

Approach 2: International Business Machines Price vs Earnings

For a profitable company like International Business Machines, the P/E ratio is a useful way to think about how much you are paying for each dollar of current earnings. It helps you compare what the market is willing to pay for this earnings stream against other companies and the broader IT industry.

What counts as a “normal” P/E depends on how investors view growth potential and risk. Higher expected growth or lower perceived risk can justify a higher P/E, while slower expected growth or higher risk can point to a lower P/E as being more reasonable.

International Business Machines currently trades on a P/E of 21.76x. That is above the IT industry average P/E of about 19.75x and the peer average of 15.66x. Simply Wall St’s proprietary Fair Ratio for the stock is 31.69x, which reflects factors such as earnings growth, industry, profit margins, market cap and company specific risks. Because it blends these elements, the Fair Ratio gives a more tailored reference point than simple comparisons with industry or peer averages.

Comparing the Fair Ratio of 31.69x with the current P/E of 21.76x suggests that International Business Machines may be trading below this model based reference point.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your International Business Machines Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced as a simple way for you to set out a story for International Business Machines that ties your view of its business to specific assumptions for future revenue, earnings and margins. These then flow through to a Fair Value that can be compared with the current share price on Simply Wall St’s Community page. On that page, Narratives are updated automatically when new news or earnings arrive. For example, one Narrative currently anchors on a Fair Value of US$390.0 while another sits closer to US$223.2. This reflects how different investors can look at the same company and reach different conclusions about what it is worth.

For International Business Machines, however, we will make it really easy for you with previews of two leading International Business Machines Narratives:

Fair value used in this upbeat Narrative: about US$302.05 per share.

Implied discount to that fair value at the last close of US$245.07: roughly 18.9%.

Revenue growth assumption used in this view: about 5.18% a year.

• Focuses on hybrid cloud, AI, quantum and software, with revenue, earnings and margins built off analyst assumptions such as revenue rising to US$74.4b and earnings to US$10.5b by 2028.
• Leans on higher profit margins of roughly 14.3% and a future P/E of about 35.1x, which together support a fair value above the current share price in this Narrative.
• Flagged risks include macro conditions, competition in key software and consulting areas and currency effects, which could all challenge the revenue and margin path used in the model.

Fair value used in this cautious Narrative: about US$223.21 per share.

Implied premium to that fair value at the last close of US$245.07: roughly 9.8%.

Revenue growth assumption used in this view: about 3.90% a year.

• Builds off a lower fair value tied to the most cautious analyst price targets, with revenue assumptions around US$73.3b and earnings of about US$8.8b by 2028.
• Assumes profit margins near 13.5% and a future P/E of about 28.0x, which combine to support a fair value that sits below the current share price in this Narrative.
• Highlights pressure from large cloud providers, potential erosion of legacy mainframe and software revenue, higher compliance and debt costs and questions about how much hybrid cloud and AI can offset these headwinds.

If you want to see how your own view of growth, margins and risk compares with these community Narratives, use them as starting points, then adjust the assumptions to match what you think is realistic for International Business Machines.

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for International Business Machines on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Do you think there's more to the story for International Business Machines? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.