I started investigating Kyndryl in 2022 after the large share price decline and began my research of the stock post IBM ownership. Since then, I have built a sizable position in the business at an average price of $11.54/share based on my research. Needless to say, I am bullish. In this post I will share why I believe the share price got off to such a horrible start post spin. Future posting will explore their business plans and stock performance, but we need to understand why the share declined so significantly in 2021/2022.
Why the Slow Start
Negative Money Flow - As with most spin-offs the shares of the new company are sold by holders of the parent company. Kyndryl just did not fit the profile of the IBM shareholder base. Kyndryl lacked earnings, had a poor growth outlook, and did not pay a dividend. It was the anchor on IBM's earnings for years and the current shareholders including IBM were pleased to exit the business!!!
Then Came Negative Money Flow on Steroids - IBM held 19.9% of the shares in KD at spin and were required to hold the shares for 1 year in order to maintain the benefits of the spin-off structure. IBM dumped the shares shortly after the 1-year mark pushing 20% of the float onto an already depressed market for the shares.
The last liquidity flush hit in late 2022 with tax loss selling.
Finally, the new company had a terrible financial profile (see chart below) and was plagued as a business unit under the IBM leadership.
Kyndryl plummeted 66.9%
KD opened for trading on 11/4/2021 at $28.41/share and traded down to $9.04/share on 11/7/2022 one year after the spin-off and the IBM big dump. With poor financial results there was little reason to hold the shares.
When everyone is running for the doors.... Time to take a look.
In my next posting I will discuss why Kyndryl made a great comeback in 2023.
In future postings I assess their turnround plan, discuss litigation risks, and will review the valuation potential for 2025.
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