Think Kyndryl Holdings is Expensive? This Chart Might Change Your Mind.
Kyndryl Holdings (NYSE: KD) looks like an expensive stock. The IT infrastructure specialist trades at 61 times GAAP earnings, and its free cash flows have been negative across the past four quarters. That's a lofty price-to-earnings (P/E) ratio, and many value investors will just walk away from Kyndryl's recent cash consumption habits.But then you're missing the big picture. Kyndryl's separation from former parent company IBM (NYSE: IBM) left the company with lots of low-margin client contracts, resulting in poor profit margin. The company has been busy restructuring its deals, boosting the profitability of about half its inherited long-term revenue streams in the first three years of standalone operations.That ratio should rise to 90% renegotiated deals by fiscal year 2028. Free cash flow is expected to reach $300 million in 2025, and then triple over the next three years. By then, the sliding top-line revenue should stabilize at mid-single-digit annual growth, setting Kyndryl up to be a shareholder-friendly cash machine with generous buybacks and perhaps a decent dividend, too.Continue reading
Kyndryl Holdings (NYSE: KD) looks like an expensive stock. The IT infrastructure specialist trades at 61 times GAAP earnings, and its free cash flows have been negative across the past four quarters. That's a lofty price-to-earnings (P/E) ratio, and many value investors will just walk away from Kyndryl's recent cash consumption habits.
But then you're missing the big picture. Kyndryl's separation from former parent company IBM (NYSE: IBM) left the company with lots of low-margin client contracts, resulting in poor profit margin. The company has been busy restructuring its deals, boosting the profitability of about half its inherited long-term revenue streams in the first three years of standalone operations.
That ratio should rise to 90% renegotiated deals by fiscal year 2028. Free cash flow is expected to reach $300 million in 2025, and then triple over the next three years. By then, the sliding top-line revenue should stabilize at mid-single-digit annual growth, setting Kyndryl up to be a shareholder-friendly cash machine with generous buybacks and perhaps a decent dividend, too.
