Time to Buy Dell Technologies (DELL) Post-Earnings Rally?

Dell Technologies DELL stock rose 32% after its impressive Q4 results last Thursday revealed the IT solutions company continues to improve its artificial intelligence products. Dell's server use of Nvidia's NVDA AI-powered GPUs is helping it join the chip giant's success.

With growing demand and interest in enterprise AI, Dell's stock has risen 63% year to year, similar to Nvidia's 74%. After the big post-earnings rise, let's evaluate Dell's Q4 numbers, outlook, and valuation to determine if it's still time to buy its stock.

Dell's Q4 earnings of $2.20 per share handily beat the Zacks Consensus of $1.73 by 27%. Better yet, Q4 EPS rose 22% from $1.80 a year earlier. Fourth-quarter sales of $22.31 billion surpassed projections by 1% despite falling from $25.03 billion. Still, Dell has outperformed earnings projections for eight straight quarters, averaging 39.9% in its last four quarterly reports.

Dell sold $88.43 billion in fiscal 2024, down 14% from FY23. Non-GAAP operating income declined 11% and 6% to $7.7 billion and $7.13 per share. The earnings beat was boosted by Dell's optimism for FY25 and its 20% dividend increase to $1.78 per share from $1.48 last year.

More fascinating was CEO Jeff Clarke's claim that AI-optimized server orders increased over 40% sequentially and backlog nearly doubled to $2.9 billion at fiscal year's end.

Dell predicts first-quarter revenue of $21 billion to $22 billion, with a midpoint of $21.5 billion, 3% growth. Dell expects fiscal 2025 revenue of $91 billion to $95 billion, with a midpoint of $93 billion showing 5% growth. Dell expects FY25 sales to climb 6% and FY26 sales to rise 1%, which is within the Zacks Consensus of $93.76 billion.

Zacks expects Dell's FY25 earnings to be steady and FY26 earnings to rise 17% to $8.30 per share. Investors will likely check Dell's valuation after the earnings increase. Dell's stock trades at 17.5X forward earnings, behind the S&P 500's 21.5X and below its Zacks Computers-IT Services Industry average of 39.8X.

Dell's P/S ratio of 0.97X projected sales is also appealing. S&P 500 at 3.6X and industry average at 7.5X, this is below the optimal level of less than 2X. Zacks ranks Dell stock #2 (Buy). Dell's valuation supports the stock's rise after Q4 results and predicts more upside as the business develops on its generative AI edge.

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