Dell (DELL)

Computer hardware and IT solutions company Dell (NYSE:DELL) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 5.1% year on year to $23.38 billion. On top of that, next quarter’s revenue guidance ($29 billion at the midpoint) was surprisingly good and 15.8% above what analysts were expecting. Its non-GAAP profit of $1.55 per share was 8.4% below analysts’ consensus estimates.

Company Overview

Founded by Michael Dell in his University of Texas dorm room in 1984 with just $1,000, Dell Technologies (NYSE:DELL) provides hardware, software, and services that help organizations build their IT infrastructure, manage cloud environments, and enable digital transformation.

The Hardware & Infrastructure sector will be buoyed by demand related to AI adoption, cloud computing expansion, and the need for more efficient data storage and processing solutions. Companies with tech offerings such as servers, switches, and storage solutions are well-positioned in our new hybrid working and IT world. On the other hand, headwinds include ongoing supply chain disruptions, rising component costs, and intensifying competition from cloud-native and hyperscale providers reducing reliance on traditional hardware. Additionally, regulatory scrutiny over data sovereignty, cybersecurity standards, and environmental sustainability in hardware manufacturing could increase compliance costs.

Dell Technologies competes with HP Inc. (NYSE:HPQ) and Lenovo Group (OTC:LNVGY) in the personal computing market, while facing competition from Hewlett Packard Enterprise (NYSE:HPE), Cisco Systems (NASDAQ:CSCO), and IBM (NYSE:IBM) in enterprise infrastructure. In cloud and as-a-service offerings, Dell also competes with hyperscalers like Amazon Web Services (NASDAQ:AMZN) and Microsoft Azure (NASDAQ:MSFT).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $96.7 billion in revenue over the past 12 months, Dell is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because finding new avenues for growth becomes difficult when you already have a substantial market presence. To expand meaningfully, Dell likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, Dell’s 1.4% annualized revenue growth over the last five years was sluggish. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Dell’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, Dell reported year-on-year revenue growth of 5.1%, and its $23.38 billion of revenue exceeded Wall Street’s estimates by 1.1%. Company management is currently guiding for a 15.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8% over the next 12 months, an improvement versus the last two years. This projection is particularly noteworthy for a company of its scale and implies its newer products and services will catalyze better top-line performance.

Dell was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.5% was weak for a business services business.

On the plus side, Dell’s operating margin rose by 2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Dell generated an operating margin profit margin of 5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Dell’s EPS grew at a weak 2.9% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.4% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Dell’s earnings to better understand the drivers of its performance. As we mentioned earlier, Dell’s operating margin was flat this quarter but expanded by 2 percentage points over the last five years. On top of that, its share count shrank by 6.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Dell reported EPS at $1.55, up from $1.27 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Dell’s full-year EPS of $8.27 to grow 16.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Dell has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.1% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Dell’s margin dropped by 9.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Dell’s free cash flow clocked in at $2.23 billion in Q1, equivalent to a 9.5% margin. This result was good as its margin was 7.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Dell hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 39.6%, splendid for a business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Dell’s ROIC has increased significantly over the last few years. This is a good sign, and we hope the company can keep improving.

Dell reported $7.7 billion of cash and $28.78 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $10.13 billion of EBITDA over the last 12 months, we view Dell’s 2.1× net-debt-to-EBITDA ratio as safe. We also see its $1.03 billion of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Dell’s optimistic revenue guidance for next quarter, which blew past analysts’ expectations. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed and its operating income fell short of Wall Street’s estimates. Overall, this quarter was mixed, but it seems like expectations were fairly low. The stock traded up 5.2% to $119.49 immediately following the results.

Updated: June 14, 2025 at 11:16 PM EDT

Are you wondering whether to buy Dell or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Dell isn’t a terrible business, but it isn’t one of our picks. For starters, its revenue growth was weak over the last five years. And while its scale makes it a trusted partner with negotiating leverage, the downside is its cash profitability fell over the last five years. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

Dell’s P/E ratio based on the next 12 months is 11.3x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $135.19 on the company (compared to the current share price of $109.66).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.