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 got off to a rocky start in life. The stock was worth $6.4 billion on Day One, also known as Nov. 3, 2021. Its stock chart immediately dipped, falling all the way from $28.50 to $8.23 per share in less than a year.
But it’s not all doom and gloom. Kyndryl’s stock has mounted a robust comeback from that brutal initial drop, posting an 87% gain in 2023. The stock still sits 32% below the spin-off date’s closing price with a market capitalization of $4.4 billion, perhaps leaving room for further gains.
So is the IT services stock poised to continue the climb this year? Let’s take a closer look.
An Early Tumble and Steep Climb
From its inception as an independent entity, Kyndryl experienced a precipitous decline in its stock value, plunging from its initial valuation and struggling to gain traction in the market. The company’s value was under significant pressure, prompting skepticism from potential investors.
Despite the initial setbacks, Kyndryl has defied the odds, inching its way back to an 87% upsurge in stock value in 2023. This remarkable recovery has piqued the interest of market participants, hinting at a possible resurgence for the IT services giant.
Cause of the Initial Setback
The division of Kyndryl from IBM was initially perceived by investors as an unwanted burden, hindering the growth potential of its parent company. The timing of its spin-off coincided with a period of global inflationary concerns, exacerbating the challenges faced by the technology sector.
Furthermore, Kyndryl’s financial performance as a separate entity has been lackluster, with declining top-line sales and consistent earnings deficits. These factors contributed to the erosion of investor confidence in the fledgling company.
Image source: Getty Images.
Resurgence and Strategic Outlook
Despite the initial challenges, Kyndryl has witnessed a shift in market sentiment concerning its growth prospects. The company’s management has instilled a sense of optimism through revised guidance and strategic partnerships, fostering confidence among investors.
In his November earnings call, CEO Martin Schroeter emphasized the company’s alliances with hyperscaler cloud-computing platforms as a pivotal driver of its long-term strategy, signaling a shift towards innovation and efficiency.
With this newfound momentum, Kyndryl appears to be carving a niche in the dynamic IT landscape, offering potential for positive adjusted earnings in fiscal year 2025. At 0.3 times trailing sales, the stock presents an enticing opportunity for value-focused investors.
Assessing the Investment Outlook
While Kyndryl’s journey has been fraught with challenges, the company’s resurgence and strategic realignment position it as a compelling investment prospect. The shift in market sentiment, coupled with promising growth catalysts, underscores the potential for positive returns over the long term.
Investors considering Kyndryl should carefully weigh the evolving narrative and strategic initiatives of the company, assessing the potential for sustained growth and value creation.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon and International Business Machines. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
