Stock/Index Performance since July 1, 2018 IBM + 9.4% S&P 500 + 7.3%

Source: Yahoo! Finance, as of Thursday, Oct. 4, 2018

While the revenue decline in recent years may seem to warrant the current negative outlook on IBM, a closer look reveals that the $28 billion drop in revenue over the past six years is largely due to currency fluctuations and divestitures, as opposed to mere secular declines in the company’s business. Excluding those factors, the revenue decline amounts to about 1% a year, compounded. Revenue is expected to grow by 1.5% this year, and Roy predicts IBM to exhibit sustained revenue growth, albeit nothing spectacular, through 2022.

Much of the strength in revenue growth will come from IBM’s cloud presence. Despite larger competitors like Amazon.com and Microsoft, IBM’s cloud business is large enough to support its analytics businesses, including machine learning. (To read more, see: UBS: Buy IBM on Cloud Growth Opportunities.)

Looking Ahead

Roy’s contrarian perspective depends on IBM’s ability to compete in the cloud business as well as strengthening revenue growth. As IBM has been a disappointment to investors for years, it may take a few quarters of positive growth to convince investors that it has really turned things around. If that happens, its currently undervalued stock could be a bargain with potential for long-term gains.