What happened
Shares of computer-manufacturer Dell Technologies (DELL 0.83%) crashed 7.5% in 11:35 a.m. ET trading Friday after the company reported Q4 earnings that fell short of analyst targets.
Heading into Q4, Wall Street had forecast that Dell would earn $1.95 per share, pro forma, on sales of $27.4 billion in the quarter. Last night, Dell beat that sales estimate by a bit -- $28 billion in quarterly sales -- but fell way short on profits, earning just $1.72 per share, pro forma.
So what
Dell grew its revenue 16% in Q4, with operating income up 13% and net income ... well, unfortunately, there wasn't any net income. Not only did Dell miss the pro forma earnings target that Wall Street set, but its profit, when calculated according to generally accepted accounting principles (GAAP), was actually negative -- a $0.04 per-share loss.
That's the bad news. The good news is that for the full-year fiscal 2021, Dell did quite a bit better. Sales grew 17% over the course of the year, with operating income up 26% and net profit more than doubling to $6.26 per share. That last number is more in line with what Dell says was its pro-forma profit for the year, as well -- $6.22 per share -- and yields a very attractive 8.3 price-to-earnings ratio on the stock.
Image source: Getty Images.
Now what
If Dell stock is so cheap, the logical next question is, why are investors selling today? And the answer is, the forecast.
As Reuters reported, on Dell's post-earnings conference call, it seems the company followed up its report of a "fiscal 2022 [that] was the best year in Dell Technologies history," with a warning that the ongoing global semiconductor shortage and other supply-chain snarls are hindering Dell's ability to produce computers in a timely fashion. The company's backlog of PCs waiting to be built and delivered will "balloon" in Q1, reports Reuters.
Not only does this imply weaker revenues going forward, but Dell added that it thinks its "operating expense ... as a percentage of revenue [will] be slightly higher than FY22 as we invest in the business," as CFO Tom Sweet warned. Or more simply, after missing earnings last quarter, Dell appears to be telegraphing that it will miss earnings again this quarter, as well.
