Will There Be an IBM Stock Split 2017?

IBM stockIs IBM Stock Split 2017 a Possibility?

Jinxed! That is how I’d define IBM stock today. Maybe it was the bad omen of the “Ides of March” but ever since peaking in March, IBM stock has been tanking, day after day. Investors are in utter shock. Could an IBM stock split 2017 reverse the fateful downtrend? That’s the question I’ll be addressing today. So stick around!

Granted, we don’t yet have an official IBM stock split date in 2017. It’s something we can hope could end up on the board’s table in the coming weeks.

You see, IBM stock is the latest victim of Murphy’s Law—everything that can go wrong is going wrong for Big Blue.

First came analyst downgrades, then came the quarterly report of revenue declines, and then came cuts from rating agencies. Worse yet; Warren Buffett hammered the final nail in the coffin with his disclosure of backpedaling on IBM stock. All of this jointly sealed IBM stock’s fate as it faced a broader market sell-off.

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The timing couldn’t get any worse than this.

That’s because the markets are actually trending upwards and nearly all technology stocks are shooting for the stars. And yet, IBM stock seems to be heading in the complete opposite direction.

This could only mean one thing. IBM itself, and not the market, is to blame.

So although it’s a temporary fix, a stock split could pull it out of this death spiral. That is, until management figures out a way to bring the company back on track.

I know, I know, splits usually occur at the high end of prices and IBM stock just dropped from its 52-week high. So why would the company want to split its stock now? And how exactly are splits going to help the stock?

Well, there’s one solid reason why and how splits can help buoy IBM stock. Allow me to explain.

Stock splits are fairly easy to understand. A company slices down its expensive stock into two or more pieces to make it cheap, calling it a stock split. So the number of stocks afloat in the market goes up, while the price of each stock goes down by the same proportion. The end result is that there is no change in the company’s market capitalization or an investor’s stake in the company.

And yet, splits open a window of opportunity for old and new investors alike. Old investors are able to unload some of the stock post-split, if they wish to. It’s like getting your $100.00 bill changed for five $20.00 bills. Obviously, you get more liquidity to spend your money in the latter case. The same goes for stocks after their split.

Likewise, stock splits are also great for new investors. A new class of retail investors can move in to buy the cheaper stock, who couldn’t afford it previously.

Imagine you have a modest portfolio of, say, $2000. Would you rather buy one stock worth $200.00 and expose 10% of your portfolio to one stock, or would you instead buy two $100.00 stocks in two different companies and diversify that exposure?

This is why I’m calling for an IBM stock split in 2017. Triple-digit stock prices may be affordable to institutions and high net worth investors like Buffett. But average retail investors, like you and me, would prefer double-digit stock prices any day.

Naturally, when this new class of retail investors will move in to buy the cheaper stock, the stock price could shoot back up. By the way, this may sound like a shot in the dark, but in fact, there’s empirical evidence of it. Stock prices usually do go up following stock splits. There are plenty of examples of recent stock splits to serve as proof.

The Uncanny Replay of Events from the 1990s

Now, you may ask, what’s the likelihood of such a split occurring based on IBM’s history? I say, there’s a good chance. Let’s travel back in time to the 1990s—to the last two times IBM stock was split.

Here’s how the events played out around the 1997 stock split. I expect you to notice the uncanny similarities between then and now.

  1. The stock markets were at all-time highs, with the tech sector booming into what later came to be known as the dot-com bubble.
  2. IBM stock, being a significant part of the Dow Jones Industrial Average, was drastically moving the index with every dollar gain or loss in its price.
  3. The stock split was preceded by troubles at the company’s core business of mainframe computers division.
  4. Through this period, IBM kept increasing dividends and buying back its shares.
  5. The last stock split prior to 1997 had happened 18 years ago.
  6. The stock was split in the month of May.
  7. The stock was split when the price hovered over the $150.00 mark.
  8. The stock had hit a high of over $170.00 before the stock split.

Deja vu!

If that’s what you just blurted out after having gone through these points, then you’re not alone.

Were IBM management to consider an IBM stock split in 2017, they would find a solid precedence to follow. How many of these items can you check? I say, all!

The stock markets are once again flying; the tech sector is seeing a bull market; IBM still makes for a significant part of the DJIA and dragged it along as it plunged; the company is once again facing troubles at the hand of competition, yet dividends and buybacks are being sustained; the last split occurred exactly 18 years ago in 1999; we’re now in the month of May with the IBM stock price hovering over $150.00, after having plummeted from a high of over $170.00.

Absolutely uncanny, I must say!

IBM Stock Split History

Following the 1997 split, IBM went for another split within two years. This time, the stock had peaked on the back of the dot-com bubble.

This is what IBM stock split history looks like in retrospect.

Split Date Split Ratio
May 1999 2-for-1
May 1997 2-for-1
May 1979 4-for-1
May 1973 5-for-4
May 1968 2-for-1
May 1966 3-for-2
May 1964 5-for-4
May 1961 3-for-2
May 1959 3-for-2
May 1957 2-for-1
May 1956 5-for-4
May 1954 5-for-4
January 1948 7-for-4
January 1946 5-for-4
February 1926 3-for-1
December 1925 6-for-5

Long story short; the time is once again ripe for an IBM stock split 2017. I’m calling for a 2-for-1 split that will cut the price down to roughly $75.00 apiece, making it a much more attractive price point for retail investors.

But I must remind you once again that this will only be a temporary fix. IBM’s problems lie deeper within its core, and Warren Buffett is not one of them.

If you look at the IBM stock price chart below, you’ll notice that Buffett being there made little difference to the stock in the long run. Buffett barely broke even on his investment.

Chart Courtesy of StockCharts.com

Chart courtesy of StockCharts.com

I hate to say it so bluntly, but the real problem is management’s lack of progressive vision. How can anyone in their sane mind expect old, antiquated, corporate ideals to compete with the modern conventions of Silicon Valley?

This is exactly why IBM is losing its market share to the more dynamic tech companies of the 21st century, like Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL) and Google, and Microsoft Corporation (NASDAQ:MSFT).

As of now, the biggest bone of contention for stockholders is that the management compensation keeps going up while IBM’s revenue and stock price continue to head south. Investors are particularly sore that IBM CEO Ginni Rometty’s compensation has consistently been raised while her efforts to turn IBM around have born little fruit.

So, the real red flag is the red tape extending through its C-suite. It’s natural for shareholders to lose faith in a technology company that’s becoming overtly bureaucratic. After all, tech companies are supposed to be dynamic and innovative, not static and stale.

But I’m still hopeful in my IBM stock prediction for 2017.

With revenue from most segments heading downhill, the last ray of hope that remains is IBM’s “Strategic Imperatives” business segment. Latest quarter revenue from this segment was up 12% year-over-year, making it the only segment where any significant growth was seen. The segment now makes up nearly 42% of the company’s total revenue and is slowly clawing away revenue share of IBM’s other business segments.

Strategic Imperatives, by the way, include initiatives in some of the next-generation technologies like cloud computing, social and mobile technologies, big data analysis and security, and, not to forget, IBM’s “Watson”—IBM’s most promising product for artificial intelligence (AI).

So management may still have a chance to turn around IBM’s fate by pivoting this segment at the core. I wouldn’t get hasty in writing off IBM stock just yet. After all, Buffett too has held on to two-thirds of his investment in IBM stock.

Final Word on IBM Stock Split 2017

If you were to ask me if IBM stock will split in 2017, then you’re asking the wrong question. Frankly, I don’t know. Instead, if you were to ask me if IBM stock should split in 2017, then my one word answer is: Yes!

Many institutional investors are bailing on the stock, and with Buffett backpedaling, most high net worth investors have also moved over to the sidelines. The dearth of demand will continue to keep IBM stock price lower unless management makes way for average retail investors to move in. That’s only possible if they cut down the IBM stock price to double digits.

That said, the maneuver will only work its magic in the short run. In the long run, management must deliver value to stockholders, else more investors will head towards the exit doors.

In a nutshell, keep an eye out for IBM stock. Management may soon be making some strategic moves to fix the company, while also considering an IBM stock split 2017.

I’m keeping my fingers crossed!