Bets on Dell's Turnaround Strategy Just Got Less Expensive; Forward PE at 8.2

Dell's (DELL) stock is taking a beating after it disappointed the market with weak fiscal fourth-quarter earnings and, more importantly, a relatively bleak sales outlook for the current fiscal first quarter.

Dell Stock Chart

Dell Stock Chart by YCharts

Correspondingly, the Dell's PE continues to slide compared to some competitors, such as International Business Machines (IBM) and Oracle (ORCL). It's only marginally ahead of Hewlett-Packard (HPQ), whose own stock is caught up in the same downward pressure hitting Dell. Hewlett-Packard reports earnings after the closing bell Wednesday.

Dell PE Ratio Chart

Dell PE Ratio Chart by YCharts

But if Dell was worth a look before its most recent earnings report, it should still be worth a look now - maybe even more so given its cheaper price.

Key to Dell's revival has been a shift in its growth ambitions away from the PC business to providing "enterprise solutions and services." That translates into less low-margin consumer computer market and more large corporate IT budgets. That continued to play out in the fourth quarter, which ended Feb. 3.

Dell sales to consumers fell 2% to $3.2 billion, as revenue to this segment as a percentage of total revenue slid to 20% versus 21%.

Sales to large enterprises, meanwhile, rose 5% to $4.91 billion.

Product sales grew 1% in the quarter to $12.93 billion, but services and software gained 6% to $3.11 billion over the year-earlier period.

Still, the quarter was pretty dismal for Dell. Despite the top-line revenue growth, operating income fell 19%, net income dropped 18% and earnings per share fell 10%. And several equity analysts cut their ratings on the company to hold from buy.

But with Dell's forward PE of 8.21, versus 11.77 at IBM, 11.17 for Oracle, according to Yahoo Finance, if you believe in the plan, and are confident of its execution, you’ve got to like the price.

Michael McHugh is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.

Read more articles about: Company Analysis  

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