Kyndryl Holdings (KD -13.21%) 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 (IBM -0.98%) 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.

Kyndryl's financial makeover

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.

Here's how Kyndryl's management likes to visualize these "triple, double, single" ambitions:

Image source: Kyndryl Holdings Q3 2025 earnings presentation.

It all starts with a bit of fancy financial engineering. That's par for the course, since CEO Martin Schroeter spent 13 years in high-level financial management roles at IBM. Backing away from unprofitable service contracts resulted in falling sales, but it will also generate richer profit margin and direct profit over time.

Exploring Kyndryl's valuation from a future perspective

Kyndryl's stock doesn't look expensive anymore when you account for the company's long-term profit growth. If the company reaches its $1 billion target for free cash flows in 2028 and the stock stayed flat, Kyndryl would be worth just eight times those estimated 2028 cash flows. The stock price could double from here and still look affordable next to IT management services rivals such as Accenture (ACN -0.06%) and WiPro (WIT 1.93%).

So Kyndryl's stock isn't as expensive as it seems. The company is restructuring its order book on a fundamental level, setting investors up for solid long-term returns.