Breaking Down Dell Technologies Stock Ahead of Earnings

DELL has affordably priced options

Nov 16, 2020 at 10:05 AM
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Dell Technologies Inc. (NYSE:DELL) is one of the world’s largest personal computer brands. In recent years, the company has taken several steps to integrate cloud computing as a major part of its business with the acquisitions of VMware, EMC (now known as Dell EMC), and Virtustream. Today, Dell Technologies is structured into three main businesses: VMware, Dell EMC, and Dell Client Solutions Group.

In a familiar theme of 2020, DELL tapped a four-year low of $25.51 on March 18 and a record high of $71.45 on Oct. 14. The stock is currently up only 33% year-to-date, and even despite a 5.4% November deficit, its 120-day moving average has stepped up and caught the pullback.

Two interesting options data points stand out. First is that puts are quite popular, per DELL's 10-day put/call volume ratio of 1.61 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 94% of readings from the past year, showing a penchant for long puts of late.

Secondly, now might not be a bad time to weigh in on these options, either. The stock's Schaeffer's Volatility Index (SVI) of 43% stands higher than just 16% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment. 

On the earnings front, Dell Technologies has beat expectations on three of its four most recent earnings reports. In the fourth quarter of 2019, Dell Technologies beat expectations by $0.13. The company reported an earnings per share (EPS) of $1.75. In the first quarter of 2020, Dell Technologies narrowly missed its earnings expectations by a margin of $0.02. Despite missing expectations, the company increased its EPS to $2.00 in the first quarter of this year. In the second quarter of 2020, Dell Technologies reported a dropped EPS of $1.34, beating expectations by $0.42.

Most recently, when reporting on the company's fiscal third quarter, Dell Technologies beat its earnings target by 38%. The company reported an EPS of $1.92 instead of the expected EPS of $1.39. As for Dell Technologies' upcoming earnings report, the company is expected to drop its EPS down to $1.38. Dell Technologies is currently set to report earnings next week on November 24 after the close.

From a long-term investor perspective, is difficult to see much going wrong for Dell in the coming years. Although DELL currently sits near its all-time highs, the company has an extremely attractive forward price-earnings ratio of 9.76 and an amazing history of revenue growth. Further, Dell Technologies just completed its first profitable fiscal year since going public in January of this year.

However, a major downside risk for the company that should be considered when investing for the long haul is its large debt load, although a weaker-than-usual balance sheet is pretty normal for a company that’s still growing. In time, Dell Technologies has the potential to reduce its debt. For now, the company's prioritization of revenue and market-share growth is the solid focus if Dell Technologies plans to compete in the already-competitive technology sector. 

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