How far from the Big Blue tree did the Kyndryl (NYSE: KD) apple fall?
Formerly known as IBM‘s (NYSE: IBM) IT infrastructure-services division, Kyndryl spun out as an independent public company in 2021. As a separate business, Kyndryl is the world’s largest provider of support for business-grade and mission-critical technology systems.
Kyndryl’s journey since its debut as a standalone entity offers a gripping tale. The stock experienced a tumultuous inception, plunging from its initial $28.50 share price to $8.23, a magnetism uncommon to burgeoning enterprises. However, despite this tempestuous entry into the market, Kyndryl displayed remarkable resilience, with its stock rallying to an 87% gain in 2023, a testament to the company’s potential for rebirth and rejuvenation.
The Origins of Kyndryl’s Stock Decline
How did Kyndryl manage to evoke a sense of skepticism amongst investors, you ask? In essence, the company was perceived as a yoke on IBM, a weighty constraint overshadowing IBM’s high-growth pursuits. Fueling this sentiment was IBM’s strategic shift towards burgeoning avenues such as artificial intelligence, data security, and hybrid cloud computing, leaving little room for the less dynamic IT services enterprise.
The inklings of Kyndryl’s misfortune were further exacerbated by its timing, coinciding with the onset of a global inflation scare in 2022, a plight that cast a pall over the technology sector. Moreover, Kyndryl’s independent trajectory has been marred by a consistent decline in sales and profitability, painting a bleak picture for its prospects.
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A New Dawn for Kyndryl
Amidst the chiaroscuro of Kyndryl’s fortunes, a newfound semblance of optimism has emerged. Despite the occasional underwhelming earnings reports, the market’s response has been surprisingly buoyant, with three out of four quarterly reports in 2023 igniting discernible upticks in Kyndryl’s stock price, indicative of a shifting sentiment towards the company’s trajectory.
This positive outlook finds support in management’s persistent upward revisions of full-year estimates, signaling a gradual shift in investor expectations. Kyndryl’s strategic collaborations with hyperscaler cloud-computing platforms have evoked a sense of promise, as reflected by a notable surge in hyperscaler-related signings and revenues, spotlighting the company’s growing relevance in a dynamic market landscape.
The Road Ahead for Kyndryl
Despite its tumultuous inception, Kyndryl seems poised to carve a distinct niche in the ever-evolving IT domain. With management’s long-term guidance forecasting a turn to positive adjusted earnings by fiscal year 2025 and the stock trading at an attractive 0.3 times trailing sales, Kyndryl presents an intriguing investment proposition.
While not a direct gateway to IBM’s high-octane aspirations, Kyndryl’s ascendant trajectory presents a compelling opportunity. Investing in Kyndryl at its current bargain-bin valuation could potentially yield substantial returns in the long run, underscoring the adage that slow and steady growth, when underpinned by a positive trajectory, can be a prudent investment avenue.
Before you venture down the path of Kyndryl investment, however, it’s prudent to note that the Motley Fool Stock Advisor analyst team has identified 10 compelling investment options, with Kyndryl not making the cut. As always, cautious diligence should accompany any investment decisions.