DELL: Lenovo vs. Dell: Which Computer Stock is a Better Buy?

Lenovo Group Limited (LNVGY - Get Rating) and Dell Technologies Inc. (DELL - Get Rating) are two of the world’s largest computer manufacturers. LNVGY manufactures and sells consumer personal computers, servers and workstations, and a family of mobile internet devices. DELL operates through three segments—its Infrastructure Solutions Group (ISG), Client Solutions Group (CSG), and VMware.

Personal computers have resurfaced as an essential device since stay-at-home mandates amid the pandemic have forced people to rely on them more than ever for work, school, socializing and entertainment. Though the world is slowly defeating the pandemic, behavioral changes like digital learning and flexible working are expected to continue. This, we think, should keep driving the demand for PCs and create a host of new opportunities for industry leaders like LNVGY and DELL.

While LNVGY gained 103.7% over the past year, DELL returned 90.9%. In terms of past six-month performance, LNVGY is the clear winner with 97% gains versus DELL’s 28.1%. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

Last month, LNVGY signed as a Title Partner of the Ducati MotoGP Team as a part of the three-year key technology partnership with Ducati. The collaboration is an important milestone in LNVGY’s activities in powering extensive data analytics and artificial intelligence (AI) in the world of motorbike racing.

In January, the company introduced its next-generation ThinkReality A3 lightweight smart glasses to enhance office professionals’ productivity and help deliver intelligent transformation in business. As the remote working trend continues, this new platform should witness significant demand from global enterprises in the coming months.

Meanwhile, DELL has been working with FedEx (FDX) and Switch to develop exascale multi-cloud edge infrastructure services to help customers overcome performance barriers in latency-sensitive applications. This will expand DELL’s service offering and allow it to offer its customers faster access to their workloads and data.

Recent Financial Results

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LNVGY’s group revenue has increased 22% year-over-year to $17.25 billion in the third quarter, ended December 31, 2020. Its gross profit grew 23% from its year-ago value to $2.79 billion. The company’s operating profit rose 44% from the prior-year quarter to $701 million, while its net income grew 53% year-over-year to $395 million. Its EPS rose 53.2% from the year-ago value to $3.31.

DELL’s net revenues have increased 9% year-over-year to $26.11 billion in its fiscal fourth quarter, ended January 29, 2021. Its operating income rose 204% from its year-ago value to $2.18 billion, while its adjusted EBITDA has grown 19% year-over-year to $3.81 billion. The company’s non-GAAP net income increased 36% year-over-year to $2.29 billion over this period.

Past and Expected Financial Performance

LNVGY’s revenue and EBITDA have at a CAGR of 7.9% and 53.4%, respectively, over the past three years.

Analysts expect the company’s revenue to increase 14.9% in the current quarter. Also, its EPS is expected to grow at a rate of 9.2% per annum over the next five years.

In comparison, DELL’s revenue and EBITDA grew at a CAGR of 6% and 11.5%, respectively, over the past three years.

Analysts expect DELL’s revenue to increase 12.6% in the current quarter. The company’s EPS is expected to grow at a rate of 5.2% per annum over the next five years.

LNVGY has an edge over DELL here.

Profitability

DELL’s trailing-12-month revenue is 1.7 times LNVGY’s. Also, DELL is more profitable with a gross profit margin of 31.2% versus DELL’s 16.1%.

However, LNVGY’s levered free cash flow margin of 5.1% compares favorably with DELL’s 2.9%.

Valuation

In terms of trailing-12-month price/sales, DELL is currently trading at 0.65x, 124.1% higher than LNVGY’s 0.29x. Also, in terms of trailing-12-month ev/sales, the company is currently trading at 1.08x, 248.4% higher than LNVGY’s 0.31x.

So, LNVGY is the more affordable stock.

POWR Ratings

Both LNVGY and DELL have an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Both LNVGY and DELL have Momentum Grades of B, which is consistent with their price returns over the past year.

In terms of Value Grade, LNVGY has an A given its lower-than-industry p/e ratio. In comparison, DELL has a Value Grade of B.

Both LNVGY and DELL have Growth Grades of A, which is consistent with their revenue and earnings growth potential.

Among the 50 stocks in the B-rated Technology – Hardware industry, LNVGY is ranked #3 while DELL is ranked #8.

Our POWR Ratings system has also rated both LNVGY and DELL for Sentiment, Stability, and Quality. Get all LNVGY’s ratings here. Click here to see the additional POWR Ratings for DELL.

The Winner

While both LNVGY and DELL can be considered good long-term investments given their market dominance and flexible business model, LNVGY appears to be a better buy based on the factors discussed here. LNVGY’s superior financials and relative undervaluation make it a better investment option compared to DELL.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here if you want to know about the other top-rated stocks in the Technology – Hardware industry.

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DELL shares were trading at $85.57 per share on Friday afternoon, up $2.77 (+3.35%). Year-to-date, DELL has gained 16.76%, versus a 2.76% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...