With shares of Dell Inc. (NASDAQ:DELL) trading at around $13.40, is Dell an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
The PC industry is in constant decline, revenues have been declining, and earnings have been inconsistent. As of right now, shareholders are set to receive $13.65 per share in cash by the second quarter of 2014 thanks to an LBO. Dell's board is attempting to finalize the deal, but shareholder greed is getting in the way. Considering the circumstances, it might be wise for them to take the money and run.
Q1 results for Dell weren't impressive. Non-GAAP EPS came in at $0.21 on $14.1 billion in revenue. Both were declines on a year-over-year basis. Enterprise Solutions Group revenue increased 10 percent, and Dell Services revenue increased 2 percent. However, Dell Software suffered an operating loss, and End User Computing revenue declined 9 percent. Gross margin declined to 19.5 percent from 21.3 percent for the same quarter one year ago. Costs and competition have increased. For those looking for good news, Dell yields 2.40 percent. Sorry, but there isn't much more good news to report.
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The chart below compared fundamentals for Dell and Hewlett-Packard Company (NYSE:HPQ).
| DELL | HPQ | |
| Trailing P/E | 12.69 | N/A |
| Forward P/E | 8.29 | 5.89 |
| Profit Margin | 3.30% | -10.86% |
| ROE | 18.56% | -41.00% |
| Operating Cash Flow | 3.38B | 11.94B |
| Dividend Yield | 2.40% | 2.50% |
| Short Position | 1.70% | 3.20% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
Dell has performed well year-to-date, but it has underperformed the market for years.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| DELL | 0.04% | 32.93% | -7.09% | -8.57% |
| HPQ | 8.38% | 49.71% | 1.73% | -52.35% |
At $13.40, Dell is trading below its 50-day SMA, but above its 200-day SMA.
| 50-Day SMA | 13.66 |
| 200-Day SMA | 12.37 |
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio for Dell is close to the industry average of 0.70.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!| Debt-To-Equity | Cash | Long-Term Debt | |
| DELL | 0.67 | 10.90B | 7.25B |
| HPQ | 1.21 | 12.63B | 28.25B |
E = Earnings Have Been Inconsistent
Earnings have traveled across rolling hills over the past several years. Revenue performance has been even more concerning.
| Fiscal Year | 2009 | 2010 | 2011 | 2012 | 2013 |
| Revenue ($) in millions | 61,101 | 52,902 | 61,494 | 62,071 | 56,940 |
| Diluted EPS ($) | 1.25 | 0.73 | 1.35 | 1.88 | 1.35 |
As stated earlier, Q1 EPS came in at $0.21 on $14.1 billion in revenue. Below is a look at the four previous quarters.
| Quarter | Apr. 30, 2012 | Jul. 31, 2012 | Oct. 31, 2012 | Jan. 31, 2013 |
| Revenue ($) in millions | 14,422 | 14,483 | 13,721 | 14,314 |
| Diluted EPS ($) | 0.36 | 0.42 | 0.27 | 0.30 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Do Not Support the Industry
PCs and laptops are in decline, and Europe is still very weak. On a global scale, there is an enormous disconnect between what's taking place in equity markets and what's taking place in the real economy. In other words, the consumer isn't as strong as advertised.
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Dell has been a well-run company for many years, but there isn't much reason for optimism at the moment. Dell’s goal is to become a leading global provider of services to enterprises. The following is a related quote from Brian Gladden, Dell CFO:
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