Kyndryl currently trades at $39.45 per share and has shown little upside over the past six months, posting a middling return of 1.4%.
Is there a buying opportunity in Kyndryl, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Kyndryl Not Exciting?
We don't have much confidence in Kyndryl. Here are three reasons why we avoid KD and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Kyndryl’s demand was weak over the last four years as its sales fell at a 6% annual rate. This was below our standards and is a sign of lacking business quality. 
2. Breakeven Free Cash Flow Limits Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Kyndryl broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Kyndryl’s five-year average ROIC was negative 20.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the business services sector.
Final Judgment
Kyndryl isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 18.9× forward P/E (or $39.45 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.
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