Shares of Dell Technologies (DELL -0.68%) fell 48.7% in November, according to data from S&P Global Market Intelligence.
And yet, if you were a Dell shareholder to start the month, you would actually be around breakeven since the start of November. That's because the drop in Dell's stock price wasn't the result of its value falling, but rather the spinoff of its 81% stake in VMware (VMW 0.67%) to shareholders.
On Nov. 1, Dell spun off its 81% stake in VMware to shareholders. Anyone holding Dell at that time received 0.440626 shares of VMware per share of Dell. Even though VMware's stock has dropped since the spinoff amid a rout in the software sector, at today's VMware share price of $115.58, that would still equate to $50.92 in value. Meanwhile, the remaining portion of Dell's stock has appreciated through the month to $58.75 as of this writing, equating to a combined value of $109.67, roughly where Dell's stock sat before the spinoff.
Of course, given the decline in VMware since the spinoff, the "remaining" Dell actually rose through the month. That rise was underpinned by a strong November earnings report that beat expectations for both revenue and earnings per share. The main factor behind the beat was Dell's PC segment, which saw an incredible 35% growth rate, even when lapping a quarter of elevated consumer PC sales during the pandemic.
So, the "drop" in Dell's stock is nothing to worry about -- quite the contrary. And even after its strong November performance, the "remaining" core Dell business only trades at 6.75 times next year's earnings estimates, making it a deep value stock even after its good month.
Looking ahead, Dell has almost reached its leverage target of 1.5 times earnings before interest, taxes, depreciation, and amortization, which it should hit sometime next year. After that, the company plans to return 40% to 60% of its free cash flow to shareholders in the form of dividends and repurchases. So while this year's performance was nice, the story may only get better next year, when Dell likely initiates a dividend.