Dell Technologies (DELL) has recently been attracting a lot of attention in the market. But before diving into the hype, it’s important to analyze the fundamental factors that could influence the stock’s performance in the near future.
Over the past month, shares of this computer and technology services provider have experienced a decline of 30.6%, lagging behind the Zacks S&P 500 composite’s -4.8% change. During this period, the Zacks Computer – Micro Computers industry, which Dell Technologies belongs to, has also witnessed a loss of 6.4%.
Focusing on Earnings Estimates
At Zacks, we prioritize assessing a company’s earnings projections. We believe the fair value of a stock is ultimately determined by the anticipated future stream of earnings. Analyzing how sell-side analysts covering the stock revise their earnings estimates to reflect current business trends is crucial.
If earnings estimates for a company rise, the perceived fair value of its stock also increases. This higher fair value, relative to the current market price, attracts investors, potentially driving the stock price upward. Empirical research has consistently shown a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
Dell Technologies is expected to post earnings of $1.72 per share for the current quarter, representing a year-over-year change of -1.2%. While the Zacks Consensus Estimate has remained unchanged over the past 30 days, the consensus earnings estimate of $7.82 for the current fiscal year indicates a year-over-year change of +9.7%. This estimate has also remained stable over the past month. Looking ahead, the consensus earnings estimate of $9.66 for the next fiscal year indicates a projected change of +23.5% from what Dell Technologies is expected to report a year ago. This estimate has also remained unchanged over the past month.
The Significance of Zacks Rank
Our proprietary stock rating tool, the Zacks Rank, leverages the power of earnings estimate revisions, offering a more conclusive picture of a stock’s near-term price direction. Based on recent changes in the consensus estimate and three other factors related to earnings estimates, Dell Technologies currently holds a Zacks Rank #3 (Hold).
Analyzing Revenue Growth Potential
While earnings growth is a crucial indicator of financial health, it’s equally important to understand a company’s ability to generate revenue. Sustained earnings growth often requires consistent revenue growth. Knowing a company’s potential revenue growth is essential for understanding its long-term prospects.
In Dell Technologies’ case, the consensus sales estimate of $24.06 billion for the current quarter points to a year-over-year change of +4.9%. The $96.76 billion and $104.12 billion estimates for the current and next fiscal years indicate changes of +9.4% and +7.6%, respectively.
Reviewing Recent Results and Surprise History
Dell Technologies reported revenues of $22.24 billion in the last reported quarter, representing a year-over-year change of +6.3%. EPS for the same period was $1.27, compared with $1.31 a year ago. These results surpassed the Zacks Consensus Estimate of $21.7 billion, representing a positive surprise of +2.5%. The EPS surprise was +1.6%. The company has consistently beaten consensus EPS estimates in each of the trailing four quarters, and it has topped consensus revenue estimates three times during this period.
Valuation Matters
No investment decision can be made without considering a stock’s valuation. Evaluating whether the current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is crucial for determining future price performance.
Comparing the current value of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its historical values helps assess whether the stock is fairly valued, overvalued, or undervalued. Additionally, comparing the company to its peers on these metrics provides valuable insights into the reasonableness of its stock price.
As part of the Zacks Style Scores system, the Zacks Value Style Score (evaluating both traditional and unconventional valuation metrics) categorizes stocks into five groups ranging from A to F (A being the most favorable). This system helps identify whether a stock is overvalued, rightly valued, or temporarily undervalued. Dell Technologies is graded A on this front, suggesting that it is trading at a discount to its peers.
In Conclusion
The factors discussed here, along with other information available on Zacks.com, can help determine whether the market buzz surrounding Dell Technologies is justified. While its Zacks Rank #3 suggests that it may perform in line with the broader market in the near term, a comprehensive analysis is essential for informed investment decisions.
