Is now a good time to buy Dell?

In the corner where no one cares, Dell's stock price has quietly doubled in the past year. After the financial report was released a few days ago, the company's stock price has now fallen by 23%. So why did the company fall? Can we buy it after it falls?

The first and second largest main business revenues are PC business (CSG) and server and storage business (ISG).

In the latest financial report season, although Dell's revenue exceeded expectations, its profit margin was lower than market expectations. The company's gross profit margin was 22.2%, lower than the market expectation of 22.9%, and the operating profit margin was 6.6%, lower than the long-expected 6.8%.

The next quarter's performance guidance also has this problem. Although the revenue expectations are still stable, the profit margin is lower than expected.

Dell has raised its full-year revenue guidance to $93.50 billion to $97.50 billion, with ISG revenue growth exceeding 20% (previously expected to be around 15%) and CSG revenue growth remaining in the low single digits (unchanged). Considering the low profit margin of AI servers, the gross margin is expected to decrease by about 150 basis points from 24.3% in fiscal year 24 (previously about 100 basis points).

A company with a relatively amazing increase in the early stage is usually highly expected by the market and must have very impressive performance to support a high valuation. However, Dell's performance has a problem of lower-than-expected profitability, so the stock price performance will be very unsatisfactory.

From the entire financial report, we can see that the demand for Dell's AI servers is still relatively strong. Currently, the management is optimizing the profit margin of AI servers. As the proportion of AI server revenue continues to increase, it is expected to boost the profit level of the entire ISG business in the future, thereby increasing the company's EPS.

In addition to AI servers, the company's PC business will also see a recovery, and AI PCs are expected to drive a wave of replacement.

The current market value of the company is 95.20 billion US dollars, and the expected PE (forward) in 25 years is around 14.7x. The valuation is not too expensive. If it falls a bit more, you can consider building a position.