Is EMC an Outperform?

With shares of EMC Corporation (NYSE:EMC) trading at around $24.12, is EMC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

What you read in the next paragraph might be important, but it won’t be nearly as entertaining as what you will find further below. So, be patient and you will be rewarded. Then again, it might depend on your taste when it comes to white-collar workers performing an EMC dance video. If you don’t find it entertaining, then perhaps you can learn something from it. The lyrics describe exactly what EMC does, only with a lot more energy than what you would read in a company description.

EMC offers cloud computing, big data, trusted IT solutions, and more. The company is well-positioned in these areas and is likely to experience a bright future. The current economic environment might lead to some turbulent times, but EMC is a long-term winner. The stock is also loved by investors and hedge funds alike. If you’re looking for a catalyst for the stock’s movement, then you might not find anything significant other than bullish option activity. However, over the long haul, this is a highly diversified company with steadily improving margins, a strong balance sheet, and excellent cash flow. The stock gapped down a few weeks ago due to poor guidance, and the average price target was lowered to 29.83 from 30.42, but investing in EMC should be about the long-term, as in years.

What did you think of the video? Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Strong      

The debt-to-equity ratio, balance sheet, and cash flow are all excellent.

Debt-To-Equity

Cash

Long-Term Debt

EMC

0.07

$6.17 Billion

$1.71 Billion

SNDK

0.23

$2.88 Billion

$1.70 Billion

NTAP

0.28

$5.57 Billion

$1.23 Billion

 

T = Technicals on the Stock Chart Are Weak  

Despite being one of the stronger tech companies in existence, EMC hasn’t been performing well over the past two years. To make matters worse, there is no dividend. On top of that, there could be some dark times ahead in 2013. However, the cream always rises to the top in the end. Patience is the key here. Year-to-date, EMC has underperformed NetApp (NASDAQ:NTAP) and SanDisk Corporation (NASDAQ:SNDK).

1 Month

Year-To-Date

1 Year

3 Year

EMC

-0.29%

-4.59%

-8.56%

41.00%

SNDK

6.20%

14.62%

6.10%

84.80%

NTAP

6.35%

5.37%

-9.64%

12.36%

 

At $24.12, EMC is currently trading below all its averages.

50-Day SMA

24.77

100-Day SMA

25.12

200-Day SMA

25.41

 

E = Earnings Have Been Steady              

Earnings have consistently improved for several years. The same can be said for revenue, but the pace has slowed.  

2008

2009

2010

2011

2012

Revenue ($)in billions

14.88

14.03

17.02

20.01

21.71

Diluted EPS ($)

0.61

0.53

0.88

1.10

1.23

 

When we look at the last quarter on a year-over-year basis, we see a significant improvement in revenue, but only a slight increase in earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue ($)in billions

5.57

5.09

5.31

5.28

6.03

Diluted EPS ($)

0.38

0.27

0.29

0.28

0.39

 

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

The good news is that cloud computing is still in its early stages — the future potential is enormous. The bad news is that a lot of companies in the tech sector have been giving weak guidance for 2013. Therefore, there will likely be some bumps in the road.

Conclusion

This company has many more strengths than weaknesses. It’s very possible for the near future to present challenging circumstances due to economic conditions. At least it’s comforting to know that EMC held up relatively well during the financial crisis of 2008/2009. If that type of environment were to present itself again, EMC would likely be hurt, but not to any long-lasting effect.

EMC is a long-term OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.