As I pointed out earlier in the day, Dell (DELL 3.38%) stock got destroyed today, falling 7.5% in late morning trading -- and remained stuck there all day long. By the time trading ended for the day Friday, Dell shares were still down 7.5%.
Clearly, investors were not happy with Dell.
Image source: Getty Images.
What went wrong? In a nutshell, Dell missed badly on its Q4 2021 earnings, reporting a $1.72-per-share pro forma profit where Wall Street had wanted to see at least $1.95. Worse, GAAP earnings were negative for the fourth fiscal quarter -- negative-$0.04 per share, to be precise.
On top of all that, in its conference call post-earnings, Dell warned investors that it's struggling to cope with the ongoing global semiconductor shortage, with the result that personal computer orders are piling up in backlog, lacking the chips needed to complete the PCs and get them shipped out to customers. It's starting to look like revenue -- a bright spot in Q4 earnings, exceeding expectations -- might not grow as fast as hoped in Q1 2022. Combined with higher operating costs and tighter profit margins, Dell could be cruising toward a second-in-a-row earnings miss this quarter.
So does all this mean that it's time to sell Dell stock?
Investors certainly seem to have thought so today. Yet consider that Dell earned a solid $6.26 per share in 2021, giving the stock a lowly 8.2 P/E ratio. Analysts see Dell earning $7.09 this year, which would cut that P/E to 7.3. But even if they're wrong -- say, if Dell earns 10% less than forecast -- that still would leave the stock trading for only 8.1 times current year earnings.
I ask you: Is 8.1 or 8.2 times earnings really too much to pay for one of the best-recognized names in personal computing? Do you really believe that Dell won't dig itself out of this hole and resume growing once the semiconductor supply chain gets unsnarled?
I think it will. And with analysts forecasting that over the next five years, Dell will in fact grow earnings at an average of 7% annually, I think Dell stock looks cheap enough to buy right now.
