With shares of Dell (NASDAQ:DELL) trading around $13, is DELL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Dell is a global information technology company that offers its customers a range of solutions and services delivered directly by Dell and through other distribution channels. The company operates in four segments: Large Enterprise, Public, Small and Medium Business, and Consumer. Dell serves a wide range of customers: global and national corporate businesses; educational institutions, government, health care, and law enforcement agencies; small and medium-sized businesses; and end users. Through its four segments, Dell is able to provide information technology products to a growing user base around the world. As economies continue to develop, look for a company like Dell to provide important technology products for years to come.
T = Technicals on the Stock Chart are Weak
Dell stock has seen a decline over the last several years. Any progress the stock has made is met with selling. Just recently, Dell is the subject of positive merger press which may have a significant effect on the stock’s price. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Dell is trading around its key averages which signal neutral price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Dell options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Dell Options | 24.68% | 66% | 63% |
What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| May Options | Steep | Average |
| June Options | Steep | Average |
As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Decreasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Dell’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Dell look like and more importantly, how did the markets like these numbers?
| 2012 Q4 | 2012 Q3 | 2012 Q2 | 2012 Q1 | |
| Earnings Growth (Y-O-Y) | -29% | -44.90% | -12.50% | -26.53% |
| Revenue Growth (Y-O-Y) | -10.71% | -10.70% | -7.50% | -3.96% |
| Earnings Reaction | 0.21% | -7.32% | -5.34% | -17.17% |
Dell has seen decreasing earnings and revenue figures over the last four quarters. From these figures, the markets have been disappointed with Dell’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
How has Dell stock done relative to its peers, Hewlett-Packard (NYSE:HPQ), International Business Machines (NYSE:IBM), Apple (NASDAQ:AAPL), and sector?
| Dell | HP | IBM | Apple | Sector | |
| Year-to-Date Return | 32.10% | 44.53% | 5.69% | -16.82% | 6.46% |
Dell has been a relative performance leader, year-to-date.
Conclusion
Dell provides valuable and innovative technology products to a range of businesses and consumers around the world. The stock has been in a constant decline over the last several years. However, the company has been the subject of positive merger press in recent times which has lifted the stock a bit. Earnings and revenue figures have been shrinking over the last four quarters which has not really impressed investors. Relative to its peers and sector, Dell has been a year-to-date performance leader. Look for Dell to OUTPERFORM.
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