Dell Technologies Inc (DELL, Financial) recently experienced a daily loss of 5.19%, yet it has seen a 3-month gain of 6.08%. With an Earnings Per Share (EPS) of $2.59, investors are keenly observing its stock behavior. The pressing question remains: Is Dell Technologies significantly overvalued? To address this, we delve into a comprehensive valuation analysis, inviting readers to explore the financial insights that follow.
Company Introduction
Dell Technologies Inc (DELL, Financial) stands as a formidable entity in the information technology sector, primarily serving hardware to enterprises with a focus on premium personal computers and data center hardware. It boasts a commanding presence in its core markets, holding top-three positions in personal computers, peripheral displays, mainstream servers, and external storage. The company's vertical integration is complemented by a strong network of component and assembly partners, alongside a reliance on channel partners for sales fulfillment. With a current stock price of $71.93 and a GF Value of $45.47, Dell Technologies presents an intriguing case for valuation analysis.
Summarize GF Value
The GF Value is a unique intrinsic value estimate for stocks, including that of Dell Technologies (DELL, Financial). It is determined by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance projections. When a stock's price significantly exceeds the GF Value Line, it is deemed overvalued, potentially leading to poor future returns. Conversely, prices below the GF Value Line suggest higher future returns. Currently, with a market cap of $52 billion, Dell Technologies is classified as significantly overvalued according to GF Value.
Given this significant overvaluation, the long-term return on Dell Technologies' stock may fall short of the company's business growth potential.
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Financial Strength
Assessing a company's financial strength is crucial before investing. Companies with weak financial health pose a higher risk of permanent loss. Dell Technologies' cash-to-debt ratio stands at 0.31, ranking lower than 82.43% of its peers in the Hardware industry. With an overall financial strength rating of 5 out of 10, Dell Technologies' financial position is considered fair.
Profitability and Growth
Consistent profitability is a key indicator of a company's investment potential. Dell Technologies has been profitable for 4 out of the past 10 years, with a revenue of $93.60 billion and an EPS of $2.59 over the past twelve months. Its operating margin of 5.39% ranks higher than 58.67% of competitors in the Hardware industry. However, the overall profitability rank is 4 out of 10, suggesting poor profitability.
Growth is a pivotal factor in valuation, and Dell Technologies' 3-year average annual revenue growth of 6.4% is more favorable than 55.88% of companies in the Hardware industry. However, its 3-year average EBITDA growth rate of -3.5% ranks lower than 73.67% of its peers.
ROIC vs WACC
An effective way to gauge profitability is by comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). ROIC measures the efficiency of cash flow generation relative to capital investment, while WACC represents the average expected payout to security holders for asset financing. When ROIC exceeds WACC, value is being created for shareholders. Dell Technologies' ROIC over the past year was 5.06, falling short of its WACC of 7.57.
Conclusion
In summary, Dell Technologies (DELL, Financial) is estimated to be significantly overvalued. The company's financial health is fair, but its profitability is lacking, and its growth is subpar compared to industry peers. For a deeper understanding of Dell Technologies' financials, one can examine its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
