Dell Technologies in Brief

We've been asking ourselves recently if the market has placed a fair valuation on Dell Technologies. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.

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 21.6 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 64.81, 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.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.