Where Will Dell Go Next?

With shares of Dell (NASDAQ:DELL) trading around $14, 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 an information technology company that provides a range of technology solutions worldwide. The company offers desktop personal computers, notebooks, and tablets; rack, blade, tower, and servers for enterprise customers and value tower servers for small organizations, networks, and remote offices; networking solutions; and storage solutions. Its wide range of products appeal to business and consumers across the globe. As global expansion is on the rise, Dell is poised to provide the solutions businesses and consumers demand.

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Head on over to the next page to explore the technical landscape of Dell’s stock…

T = Technicals on the Stock Chart are Weak

Dell saw a gigantic run during the technology boom. Since then, the stock has yet to recover and has been in a consistent downtrend. Currently, Dell has been seeing positive press which has sent the stock significantly higher. 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 above its rising key averages which signal bullish price action in the near-term.

DELL

(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

21.49%

53%

50%

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

April Options

Flat

Average

May Options

Flat

Average

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As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high 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 Increasing 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)

-28.57%

-44.9%

-12.5%

-26.53%

Revenue Growth (Y-O-Y)

-10.73%

-10.68%

-7.54%

-3.99%

Earnings Reaction

0.14%

-7.32%

-5.31%

-17.17%

Dell has seen earnings and revenue over the last four quarters. From these figures, the markets have mostly disappointed about Dell’s last four earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Dell stock done relative to its peers, Hewlett-Packard (NYSE:HPQ), Apple (NASDAQ:AAPL), EMC (NYSE:EMC), and sector?

Dell

Hewlett-Packard

Apple

EMC

Sector

Year-to-Date Return

33.86%

55.19%

-21.91%

-5.11%

4.7%

Dell has been one of the strongest relative performers of its sector.

Conclusion

Dell is a powerful company that operates in a sector that provides essential products to consumers and businesses across the globe. The stock has seen positive news coverage this year which has reinforced its strong near-term uptrend. Earnings and revenue growth rates are not doing too well just yet but investors seemed satisfied with the latest earnings report. Relative to its peers and sector, Dell has been a relative performance leader. Look for Dell to continue to OUTPERFORM.

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