When Does IBM Become Overrated?

NEW YORK ( TheStreet) -- If you're a tech investor and have not been in a state of perpetual worry, you're probably not paying attention. Closing your eyes in bliss works only until you're rudely awakened to disappointing results. To that end, IBM's ( IBM) first quarter did just that.

Investors shouldn't have been surprised, however. The brutal reports already issued by Oracle ( ORCL) and Red Hat ( RHT) have elevated fears that enterprise spending has not fully rebounded. Big Blue did very little to calm the panic.

Plus, given that the stock had already carried some higher expectations when compared with some other enterprise-spending-dependent names, investors wasted no time selling IBM's stock. Shares declined more than 10%, falling below $190.

Now that IBM has recovered some of those gains and is back above $200, I'm grappling with whether or not the optimism is deserved. Given the recent lack of growth, it's worth asking: At what point does IBM, despite its great history, become overrated?

Don't confuse this with me saying that IBM is a bad company. After all, there's no way that one soft quarter, or for that matter even four quarters, should negate what IBM has been able to accomplish in its history. However, the pattern of unimpressive if not pathetic growth is noticeable. And it seems that IBM is operating on a different set of standards.

Disappointing First Quarter

IBM has been a very profitable company. But there has been very little growth over the years, despite the fact that the company has spent more than $16 billion over the past five years in acquisitions trying to grow the top line. This recent quarter, during which revenue dropped 5%, was no exception -- marking the first time in eight years that the company has missed.

As with the fourth quarter, there were some struggles in IBM's services business, which posted a 4% decline in revenue following a 2% decline in the fourth quarter. While this is not entirely a surprise given that Oracle had just posted a 2% decline in revenue, which was mostly due to weak cloud subscription services, it's disturbing for IBM because the services business is the company's largest unit.

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