Computer hardware giant Dell Technologies Inc. (DELL) provides information technology solutions. The stock has lost 49% in price over the past month to close Friday’s trading session at $56.18. However, its shares soared after the company posted the ‘best third quarter’ in its history, driven by robust demand, durable competitive advantages, and strong execution.

DELL’s non-GAAP net revenue increased 21% year-over-year to $28.41 billion for its fiscal third quarter, ended October 29, 2021. Its adjusted EBITDA came in at $3.41 billion, up 6% year-over-year. Also, its non-GAAP net income increased 18% year-over-year to $2.02 billion, while its non-GAAP EPS came in at $2.37, representing a 17% year-over-year rise.

DELL’s stock edged up in price after the company completed the spin-off of VMware, Inc. (VMW) on November 1, 2021. The spin-off included an $11.50 billion special cash dividend. In September 2021, DELL forecasted annual revenue growth of 3% – 4% through 2026, and announced plans for a $5 billion share repurchase. In addition, hedge funds’ interest in the stock has increased lately. So, DELL’s near-term prospects look promising.

Here are the factors that could influence DELL’s performance in the upcoming months:

Consistent Product and Services Innovation

On October 13, DELL announced several edge innovations across its infrastructure and PC portfolio, including Dell EMC VxRail satellite nodes and Dell Technologies Validated Design for Manufacturing Edge with Litmus, to help organizations simplify deployments and capture more value from data generated and processed outside the traditional data center and public cloud. Also on that day, , the company introduced new telecom software, solutions, and services to help communications service providers (CSPs) accelerate their open, cloud-native network deployments and create new revenue opportunities at the edge.

Increased Demand

DELL’s third-quarter revenue soared, driven by the solid performance of its personal-computer business. This month, the State of Oklahoma partnered with the company to update and transform its data center infrastructure, modernize disaster recovery, and become a digital-first government. Also, NBC Olympics, a division of the NBC Sports Group, selected DELL to provide high-performance storage systems for its production of the Games of the XXXII Olympiad, which took place in Tokyo, Japan, from July 23 – August 8.

Discounted Valuation

In terms of forward non-GAAP P/E, DELL’s 6.35x is 73.4% lower than the 23.88x industry average. Likewise, the stock’s 0.95x forward non-GAAP PEG is 41.5% lower than the 1.63x industry average. Furthermore, its 0.69x and 0.40x respective forward EV/S and P/S are lower than the 4.10x and 4.07x industry averages.

POWR Ratings Show Promise

DELL has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, DELL has an A grade for Value, which is consistent with its lower-than-industry valuation ratios.

The stock has a B grade for Growth. This is consistent with analysts’ expectations that DELL’s revenue will increase 10.5% year-over-year to $104.32 billion in the current year. Also, its EPS is expected to grow at an 11.4% rate  per annum over the next five years.

In addition to the POWR Rating grades I have just highlighted above, we have also rated the stock for Momentum, Stability, Sentiment, and Quality. Get all the DELL ratings here.

Also, DELL is ranked #11 out of 52 stocks in the Technology – Hardware industry.

Bottom Line

DELL’s shares surged in price after the company posted stellar third-quarter earnings. Its quarterly profit more than quadrupled on the back of solid PC demand. This demand is expected to be sustained for the foreseeable future due to the heightened hybrid work culture. Also, Wall Street analysts expect the stock to hit $61.94 in the near term, which indicates a potential 10.4% upside. So, we think it could be wise to add the stock to one’s portfolio now.

How Does Dell Technologies (DELL) Stack Up Against its Peers?

While DELL has an overall POWR Rating of B, one could also check out these A-rated (Strong Buy) stocks within the Technology – Hardware industry: Digi International Inc. (DGII), Canon Inc. (CAJ), and HP Inc. (HPQ).

DELL shares were trading at $57.02 per share on Monday morning, up $0.84 (+1.50%). Year-to-date, DELL has gained 55.60%, versus a 25.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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