Dell (NASDAQ:DELL) is one of the World's largest hardware producers. Based in Texas, the company employs over 100,000 people and it is ranked 41st in the Fortune 500 list. In the recent years, Dell's stock performance did not impress anyone, and it surely did not make the company's investors very happy. Apple's (NASDAQ:AAPL) recent gains of market share in computers and rising popularity of tablets played a role in Dell's decline. In addition, the company got heavily criticized for staying in a business (i.e., hardware) with very low profit margin.
Despite all this, I don't believe things are looking that bad for Dell. First of all, I believe that the threat of "Applemania" on Dell is overestimated. It is true that Apple is enjoying a great success and good amount of growth right now, however it should be noted that Apple and Dell might have completely different audiences in front of them. Apple's target audience is individuals who have plenty of disposable income to spend on expensive toys, whereas Dell's target audience is companies, libraries, hospitals and other organizations that buy many computers at once, in addition to individuals looking for cheaper computers. While it is common to hear that Apple will steal all the customers from PC manufacturers, many investors and analysts seem to forget the fact that not everyone in the world can afford Apple's expensive products. Dell provides good alternatives for those that cannot afford Apple's products.
Moving onto fundamentals: the chart below presents Dell's share price vs. Dell's book value in the last 10 years. About 10 years ago, Dell's share price was $27 and its book value was $4.69 billion. From 2002 to 2007, the company's book value and share price were parallel to each other, but in 2008 the two metrics took separate ways. Today Dell's share price is $17.11 and its book value is $8.35 billion. In other terms, in the last 10 years, Dell's share price went down by 38% whereas its book value went up by 84.55%.
In the next chart, you will see Dell's price to book ratio in the last 10 years. After 2008, the ratio moved from mid teens to less than 5 and it's been flat for a while. Currently Dell enjoys its lowest price to book ratio ever.
10 years ago, Dell had $3.64 billion cash and equivalents, and today the number is up to $14.62 billion dollars. While the company's cash holdings increased by 265%, its stock price plunged by 38%. There is definitely a discrepancy there and market tends to correct itself over long period of time.
Another positive metric for Dell is its EPS rates. 10 years ago, the company was earning 17 cents per share whereas it currently makes 48 cents per share, which indicates growth of almost 200%.
During the same period, Dell's revenues increased from $8.06 billion to $15.66 billion. The stock price hasn't been reflecting this growth for a long time.
On another positive note, the company's P/E ratio is near an all-time low value. Currently the stock has a P/E value similar to the one it had in early 2009.
Also, the company's profit margin seems to be recovering since 2008. Dell's profit margins suffered big time between 2006 and 2010 and the company's goal should be to keep it above 6% which is in line with its historic profit margin.
While these charts tell a hopeful story for Dell investors, I would like to present one more chart, which is not as rosy, as a cautionary note. The chart below presents Dell's debt to equity ratio which has been rising to dangerous levels since 2008.
Out of the 33 analysts covering the stock, 12 rate it as "strong buy", 6 rate it as "buy", 10 rate it as "hold" and only 5 rate it as either "underperform" or "sell." The median price target on the stock is $18 and the target prices go as high as $25. I also recommend buying and holding this stock for long term investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.