Dell Buybacks: Money Better Used to Compete Against HP, IBM?

Dell (DELL) used low-cost manufacturing to turn PCs into a commodity, and thus discovered in recent years that it’s in a low-margin, hyper-competitive industry of its own making. Since returning as CEO, Michael Dell has been moving his namesake company into higher-value businesses like software and IT consulting. Dell is making progress, but still has a long way to go in challenging the likes of International Business Machines (IBM) and even beleaguered Hewlett-Packard (HPQ).

The fast way to a broader and higher-margin product line, of course, is through acquisitions. And Dell must now compete against Big Blue and HP in trying to buy hot software and tech service firms. Thus, Dell’s expensive history of share buybacks seems regrettable.

Through fiscal 2010, which ended in January of that year, Dell spent more than $20 billion on stock repurchases at prices far above its current price of about $17. Ouch.

Dell Stock Chart

Dell Stock Chart by YCharts

Over the last couple of years, particularly in fiscal 2012, the company returned to buying its own shares. A doubling of Dell’s stock price since February 2009, however, mean most of the more recent buybacks don’t look so overpriced. To be sure, Dell isn't cash-poor. Dell’s cash and short-term investments stand at about $15 billion.

Dell Earnings Per Share Chart

Dell Earnings Per Share Chart by YCharts

Still, buybacks aren’t going to transform the PC maker – but acquisitions might.

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



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