Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Microsoft Corporation (MSFT): Has Dell Inc. (DELL) Become the Perfect Stock?

Page 1 of 2

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

Hewlett-Packard (HPQ)

One thing’s for sure: You’ll never discover truly great investments unless you actively look for them. Let’s discuss the ideal qualities of a perfect stock, then decide if Dell Inc. (NASDAQ:DELL) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it’s certainly a better sign than a stagnant top line.

Margins. Higher sales mean nothing if a company can’t produce profits from them. Strong margins ensure that company can turn revenue into profit.

Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management’s attention. Companies with strong balance sheets don’t have to worry about the distraction of debt.

Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.

Valuation. You can’t afford to pay too much for even the best companies. By using normalized figures, you can see how a stock’s simple earnings multiple fits into a longer-term context.

Dividends. For tangible proof of profits, a check to shareholders every three months can’t be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let’s take a closer look at Dell Inc. (NASDAQ:DELL).

Factor What We Want to See Actual Pass or Fail?
Growth 5-year annual revenue growth > 15% (1.4%) Fail
1-year revenue growth > 12% (8.3%) Fail
Margins Gross margin > 35% 21.5% Fail
Net margin > 15% 4.2% Fail
Balance sheet Debt to equity < 50% 84.9% Fail
Current ratio > 1.3 1.19 Fail
Opportunities Return on equity > 15% 24.2% Pass
Valuation Normalized P/E < 20 13.82 Pass
Dividends Current yield > 2% 2.3% Pass
5-year dividend growth > 10% NM NM
Total score 3 out of 9

Source: S&P Capital IQ. NM = not meaningful; Dell paid its first dividend in September 2012. Total score = number of passes.

Since we looked at Dell last year, the company hasn’t been able to regain the point it lost from 2011 to 2012, despite paying a lucrative dividend for the first time last fall. The stock has also suffered, losing nearly 20% over the past year.

Dell Inc. (NASDAQ:DELL)’s falling revenue clearly shows the troubles that the PC industry has gone through in recent years. As mobile devices become more popular, Dell has slowly seen the PC end of its business become more commoditized, leading to razor-thin margins that hold back profits. Hewlett-Packard Company (NYSE:HPQ) has faced many of the same struggles, but it has been more aggressive about seeking out higher-margin areas beyond the PC in an effort to boost overall profitability. For Dell Inc. (NASDAQ:DELL)’s part, it’s trying to implement a similar strategy, but despite a 42% increase in networking sales in its most recent quarter, it hasn’t had a huge impact on margins yet.

Page 1 of 2
Loading Comments...