Why Kyndryl Stock Soared This Week
Kyndryl (NYSE: KD) just signed off on a vigorous week. According to data from S&P Global Market Intelligence, the leading provider of IT infrastructure services saw share prices rise 32.1% from one Friday closing bell to the next, lifted by a promising fourth-quarter earnings report.
Kyndryl's quarterly results by the numbers
In Q4 of fiscal year 2024, Kyndryl's sales fell 10% year over year to $3.85 billion. The bottom line landed at a net loss of $0.20 per share, up from a $3.24 loss per share in the year-ago period.
Your average Wall Street analyst had expected a loss of roughly $0.22 per share of revenues near $3.76 billion. The company outperformed these expectations across the board.
The full-year results fell short of management's latest-guidance update, but investors shrugged off this miss along with the negative-revenue trend. Instead, they focused on management comments pointing to robust growth and wider profits in the next fiscal year, not to mention an updated business plan.
Kyndryl's stock skyrocketed 29% higher the next day and only added to these Wednesday gains as the week closed out.
Kyndryl's Growth Strategy: Pivoting to AI and Higher Margins
CEO Martin Schroeter -- formerly the CFO of Kyndryl's ex-parent company, International Business Machines (NYSE: IBM) -- said that the company is poised for long-term growth at this point.
"We're pulling forward the timing of returning to revenue growth and now expect to deliver positive revenue growth in the fourth quarter of [fiscal year 2025]," Schroeter said on the earnings call. "This fiscal year, we will pivot from transformation to growth."
Image source: Kyndryl's earnings-call presentation.
Kyndryl taps into the artificial intelligence (AI) boom by providing consulting services and tech support for enterprise customers who want to put AI tools to good use. In turn, Kyndryl's services are supported by heaps of operating data and its own machine learning tools.
"Our customers know that their AI is only going to be as good as their data," Schroeter said. "We see AI readiness as a go-to-market opportunity for us and a natural extension of many of the services we already offer."
At the same time, Kyndryl is letting go of low-margin contracts inherited in the spin-off from IBM. As a result, profit margins should widen as the top line gets into a sustained-growth mode over the next few years.
Is Kyndryl a Buy today?
At this point, Kyndryl's stock has nearly doubled in two years. The S&P 500 (SNPINDEX: ^GSPC) index rose by 27% over the same period, and mighty IBM clocked a 21% gain.
So if you wrote off Kyndryl as a low-growth alternative in the otherwise exciting tech sector, it may be time to reconsider that idea. After all, the stock is going places but still remains modestly valued at 0.4 times sales or 12 times forward-earnings estimates.
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Anders Bylund has positions in International Business Machines. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
