Is Dell a Buy Despite Potential for Going Private?

With shares of Dell Inc. (NASDAQ:DELL) trading at around $13.81, 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:

C = Catalyst for the Stock’s Movement

Dell just reported Q4 net income of $530 million, or 30 cents per share. Profit was down 31 percent year over year. Q4 revenue came in at $14.3 billion versus an expectation of $14.2 billion. There was no guidance, which is due to the fact that the company is likely to go private.

The PC business isn’t as strong as it used to be, but PCs will be around for a long time as they’re the best option for working environments. Even if laptops take over in that regard, Dell will still benefit. Unfortunately for Dell, laptop sales were down 2.5 percent for the quarter. The good news is that the server business was up 18 percent year over year. Dell is slowly moving toward selling services to corporations, which will lead to higher margins. However, this doesn’t mean Dell will give up on PCs, laptops, and tablets. Management is wise enough to make good decisions based on industry trends, profitability, and long-term potential.

At the current time, Dell has decent margins, a ton of cash flow, and it’s trading at only nine times earnings, and at eight times forward earnings. In most cases, this would look like a good value play, but since the company is likely to go private, there isn’t much place for the stock to go.

Let’s take a look at some numbers prior to forming an opinion on the stock…