International Business Machines Corporation (IBM), in Armonk, New York, provides integrated solutions and services worldwide. The company operates through five segments: Cloud & Cognitive Software; Global Business Services; Global Technology Services; Systems; and Global Financing. By way of comparison, Alteryx, Inc. (AYX) in Irvine, Calif., provides an end-to-end analytics platform for data analysts and scientists worldwide. The company also offers a cloud-based collaboration offering that allows users to share workflows in a centralized repository.
The large-scale analytics and intelligent automation services market has been generating robust growth over the past few years. The global big data market is projected to reach $234.6 billion by 2026, growing at a 10.2% CAGR. Furthermore, the big data market in the United States is expected to hit an estimated $50.1 billion this year. The industry’s robust growth prospects should drive IBM and AYX’s performance in the coming months.
IBM stock has gained 3.1% in price over the past six months, while AYX has shed 17.7% over this period. Also, IBM’s 7% gains year-to-date compare with AYX’s 42.6% slump. And in terms of their past year’s performance, IBM is the clear winner with 11.7% gains versus AYX’s 36.8% slump.
Click here to check out our Software Industry Report for 2021
But which stock is a better buy now? Let’s find out.
Latest Development
On September 8, IBM unveiled its new IBM Power E1080 server, the first in a new family of servers explicitly designed for hybrid cloud environments. Given the accelerated adoption of hybrid cloud infrastructure across the IT space, this launch should be a hit in the market.
On July 30, AYX announced that the company became an Elite Technology Partner in Snowflake Inc. (SNOW) Partner Network to accelerate analytics and data science automation for global organizations. "Our expanded partnership that includes Snowflake Partner Connect and Snowpark delivers exceptional ease-of-use for business users and citizen data scientists with a single integrated solution for high-performance analytics and machine learning,” said Nitin Brahmankar, vice president, ISV & global partner ecosystem, Alteryx.
Recent Financial Results
IBM’s total revenues increased 3.4% year-over-year to $18.75 billion in its fiscal second quarter, ended June 30. Its gross profit grew 3.5% from its year-ago value to $9.00 billion. Its non-GAAP income from continuing operations came in at $2.10 billion, reflecting a 7.9% increase year-over-year. The company’s non-GAAP EPS increased 6.9% year-over-year to $2.33.
AYX’s revenues increased 25% year-over-year to $120.07 million in its fiscal second quarter, ended June 30. Its gross profit grew 23.7% from its year-ago value to $107.14 million. AYX’s net loss increased 23.1% year-over-year to $43.44 million, while the company’s net loss per share rose 22.6% year-over-year to $0.65.
Past and Expected Financial Performance
IBM’s levered FCF has grown at a 36.9% CAGR over the past three years. Analysts expect IBM’s revenue to increase 1.7% in the next quarter, 2% in the current year, and 1.6% in the next year. The company’s EPS is expected to grow 102.4% in the next quarter, 23.8% in the current year, and 9.9% in the next year. Furthermore, its EPS is expected to grow at a 16.4% rate per annum over the next five years.
In comparison, AYX’s levered FCF has grown at a 28.1% CAGR over the past three years. Analysts expect the company’s revenue to increase 2.6% in the next quarter, 6.4% in the current year, and 18.2% in the next year. The company’s EPS is expected to decline 72.6% in the next quarter and 118.1% in the current year. However, its EPS is expected to grow 147.1% in the next year. Also, AYX’s EPS is expected to decline at a 23.3% rate per annum over the next five years.
Profitability
IBM is more profitable, with EBITDA and net income margins of 21.49% and 7.17%, respectively, versus AYX’s negative 3.01% and 10.91%.
Furthermore, IBM’s ROE, ROA, and ROTC of 24.53%, 3.84%, and 6.72%, respectively, compare with AYX’s negative 13.72%, 1.34%, and 1.53%.
Thus, IBM is more profitable.
Valuation
In terms of forward EV/Sales, AYX is currently trading at 9.27x, which is 75.4% higher than IBM, which is currently trading at 2.28x. Also, AYX’s 839.29 forward EV/EBITDA ratio is substantially higher than IBM’s 9.03.
Thus, IBM is relatively affordable here.
POWR Ratings
IBM has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, AYX has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
IBM has a B grade for Quality, owing to its higher-than-industry profit margins. IBM’s 18.33% levered FCF margin is 47.6% higher than the 12.41% industry average. In comparison, AYX has a grade of C for Quality. This is justified because AYX’s 13.17% levered FCF margin is 6.1% higher than the 12.41% industry average. IBM has a C Stability grade, which is consistent with its 0.97 beta. In contrast, AYX has a D Stability grade, which is in sync with its relatively high 1.35 beta.
Of the 46 stocks in the B-rated Technology - Hardware industry, IBM is ranked #7. Alternatively, among the 149 stocks in the D-rated Software – Application industry, AYX is ranked #88.
Beyond what we’ve stated above, we have also rated the stocks for Sentiment, Momentum, Value, and Growth. Click here to view IBM Ratings. Also, get all AYX ratings here.
Click here to check out our Software Industry Report for 2021
The Winner
Both IBM and AYX are well-positioned to benefit from the growing big data and analytics market. However, we think its higher profitability and lower valuation make IBM the better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology - Hardware industry here. Also, here to view the top-rated stocks in the Software – Application industry.
IBM shares were unchanged in after-hours trading Thursday. Year-to-date, IBM has gained 12.58%, versus a 19.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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