Dell Technologies (DELL) was recently named to Zacks.com’s list of Most Searched Stocks. Therefore, you should consider some of the key factors that could influence the stock’s performance in the near future.
Shares of this computing and technology services provider are down -24.3% over the past month, while the Zacks S&P 500 Composite is down -9.1%. The Zacks Computers – IT Services industry, which includes Dell Technologies, is down 12.4% over the period. The key question now is: Where could the stock head in the short term?
While news releases or rumors of a material change in a company’s business prospects will usually “trend” the stock and result in an immediate price change, there are always some basic facts that ultimately drive the buy-and-hold decision.
Revisions to earnings estimates
Rather than focusing on anything else, at Zacks we prioritize assessing the change in a company’s earnings outlook. This is because we believe the fair value of its stock is determined by the present value of its future income streams.
Essentially, we look at how sell-side analysts who cover the stock are revising their earnings estimates to reflect the impact of recent business trends. And when earnings estimates for a company go up, the fair value of its stock goes up. A higher fair value than the current market price attracts investors to buy the stock, causing the price to rise. For this reason, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Dell Technologies is expected to report earnings of $1.63 per share, down -31.2% from the same quarter last year. The Zacks consensus estimate is down -0.9% over the last 30 days.
Consensus earnings estimate of $6.80 for the current fiscal year indicates a change of +9.3% year-on-year. This estimate has changed by -3.1% in the last 30 days.
For the next fiscal year, the consensus earnings estimate of $7.14 shows a +5% change from what Dell Technologies was expected to report a year ago. Over the past month, the estimate has changed by -4.4%.
With an impressive, third-party audited track record, our proprietary stock ranking tool – the Zacks Rank – is a more meaningful indicator of a stock’s short-term price performance because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, has resulted in a Zacks rank #4 (Sell) for Dell Technologies.
The chart below shows the development of the company’s 12-month consensus EPS estimate:
12 Month EPS
Sales Growth Forecast
While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow its revenue. It’s almost impossible for a company to grow its profits without increasing its revenue over long periods of time. Therefore, knowing a company’s potential revenue growth is crucial.
In the case of Dell Technologies, the consensus estimate of revenue of $24.58 billion for the current quarter indicates a change of -13.5% year-on-year. The estimates of $102.2 billion and $102.73 billion for the current and next fiscal year indicate changes of -4.5% and +0.5%, respectively.
Latest reported results and surprise history
Dell Technologies reported revenue of $26.43 billion for the most recent quarter, a +1.1% year-over-year change. EPS of $1.68 for the same period compared to $2.24 a year ago.
Compared to the Zacks consensus estimate of $26.5 billion, reported earnings represent a surprise of -0.27%. EPS surprise was +3.07%.
In the past four quarters, Dell Technologies has beaten consensus estimates for earnings per share three times. The company topped consensus estimates for sales three times during that period.
No investment decision can be efficient without considering a stock’s valuation. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key factor in future stock price performance.
Comparing the current value of a company’s valuation multiples, such as B. Price to Earnings (P/E), Price to Sales (P/S), and Price to Cash Flow (P/CF), with its own historical values help determine whether the stock is Fairly Valued, Overvalued or Undervalued while making the comparison of the company relative to its peers based on these parameters gives a good indication of how reasonable the stock price is.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to rank stocks from A to F (an An is better than a B; a B is better than a C; etc.) is quite helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.
Dell Technologies is rated A on this front, indicating it is trading at a discount to its peers. Click here to view the values of some of the assessment metrics that led to this grade.
The facts discussed here and plenty of other information on Zacks.com could help determine whether or not the market excitement surrounding Dell Technologies is worth paying attention to. However, its No. 4 Zacks rank suggests it could underperform the broader market in the near term.
Want the latest recommendations from Zacks Investment Research? Today you can download the 7 best stocks for the next 30 days. Click here to get this free report
Dell Technologies Inc. (DELL): Free Stock Research Report
To read this article on Zacks.com, click here.
Zacks Investment Research