Why Kyndryl Stock Was More Than Halved On Monday
Key Points
Kyndryl’s recently-reported Q3 results fell short of expectations.
Guidance for the full fiscal year now underway was also dialed back.
More than anything, however, the company feels uncomfortable releasing its officially quarterly report to the SEC until it completes a more thorough review of its accounting procedures.
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It's a rough start to the trading week for Kyndryl (NYSE: KD) investors. As of 2:03 p.m. ET Monday, shares of the technology services outfit are down 54.5% following the release of its disappointing fiscal third-quarter results.
It's not its Q3 numbers, however, that are responsible for most of today's sizable setback.
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Bad news, and worse news
Kyndryl turned $3.9 billion worth of revenue into net income of $57 million during the three months ending in December, or an adjusted profit of $0.52 per share. While sales and earnings were up slightly year-over-year, both also fell short of expectations. Worse, the company lowered its revenue guidance for the current fiscal year. It's now anticipating free cash flow of between $325 million and $375 million on revenue that will be between 2% and 3% lower than last year's, versus an expectation for free cash flow of around $550 million just three months earlier, when Kyndryl was looking for a slight uptick in its full-year top line.
That's still not the crux of today's steep sell-off, though. Far more alarming to shareholders is the unexpected exit of now-former CFO David Wyshner and the simultaneous disclosure that the company's quarterly 10-Q filing with the Securities and Exchange Commission would be delayed because Kyndryl "is reviewing its cash management practices, related disclosures (including regarding the drivers of the Company's adjusted free cash flow metric), the efficacy of the Company's internal control over financial reporting." Ultimately, "the Company anticipates reporting material weaknesses in the Company's internal control over financial reporting for the period covered in the Quarterly Report, as well as for the full fiscal year ended March 31, 2025, and the first two fiscal quarters of fiscal year 2026."
This delay -- and the reason for it -- don't guarantee that previous and current reports are in error or misleading. Investors are understandably responding as if that's a likely outcome, however.
If you're getting in, buckle up
There's a value argument to be made for stepping in here after today's steep sell-off. That is, priced at only around three times the per-share profit of $3.38 analysts had been anticipating (until today) for the year ahead, any correction to past and projected results from here is unlikely to fully unwind the stock's current bargain price.
Just be sure you can stomach the volatility and risk suddenly surrounding the stock. It could linger for weeks, making it difficult to stick with. Most investors would be better served by looking for something at least a little more predictable.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kyndryl. The Motley Fool has a disclosure policy.
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