A strong performer from today's afternoon trading session is Dell Technologies, whose shares rose 1.3% to $54.22 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.
Dell Technologies's Valuation Is in Line With Its Sector Averages:
Dell Technologies Inc. designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16. In contrast, Dell Technologies has a trailing 12 month P/E ratio of 20.5 based on its earnings per share of $2.64.
There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.
One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.
Dell Technologies's PEG ratio is 60.25, which shows that the stock is overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Stable Revenues With Increasing Reinvestment in the Business:
| 2019-03-29 | 2020-03-27 | 2021-03-26 | 2022-03-24 | |
|---|---|---|---|---|
| Revenue (MM) | $90,621 | $84,815 | $86,670 | $101,197 |
| Gross Margins | 27.6% | 24.3% | 23.2% | 21.6% |
| Operating Margins | -0.2% | 2.8% | 4.2% | 4.6% |
| Net Margins | -2.55% | 5.44% | 3.75% | 5.5% |
| Net Income (MM) | -$2,310 | $4,616 | $3,250 | $5,563 |
| Net Interest Expense (MM) | -$2,170 | n/a | n/a | n/a |
| Depreciation & Amort. (MM) | -$7,746 | -$6,143 | -$5,390 | -$4,551 |
| Earnings Per Share | -$5.88 | $3.1 | $2.16 | $2.64 |
| EPS Growth | n/a | 152.72% | -30.32% | 22.22% |
| Diluted Shares (MM) | 393 | 1,490 | 1,507 | 258 |
| Free Cash Flow (MM) | $8,488 | $11,867 | $13,489 | $13,103 |
| Capital Expenditures (MM) | -$1,497 | -$2,576 | -$2,082 | -$2,796 |
| Net Current Assets (MM) | -$75,428 | -$78,209 | -$71,823 | -$49,282 |
| Current Ratio | 0.8 | 0.7 | 0.8 | 0.8 |
| Long Term Debt (MM) | $49,201 | $44,319 | $32,865 | $21,131 |
| LT Debt to Equity | 193.7 | 11.71 | 4.1 | -13.37 |
Dell Technologies has stable revenues and increasing reinvestment in the business, a steady stream of strong cash flows, and positive EPS growth. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a positive growth rate.
