Sometimes, looking for beleaguered stocks on the cheap can yield great returns for hardy investors with wills of iron, stomachs of steel, or whatever you want to call it. I can see why some might consider Dell
There was already plenty of negativity surrounding the company even before last week's newest spate of bad news. We learned that it's got even more troubles than previously realized. It has to delay filing its annual report on Form 10-K. (It's already delinquent in its SEC filings.) There are accounting errors to contend with. And worst of all, there's the specter of "misconduct" floating around, too.
This is not the same investing scenario as the spying scandal that rocked Hewlett-Packard
Dell, on the other hand, has tons of issues assailing it at the moment. It is losing market share (to HP, no less), and it seems that many people are less than enamored of the quality of Dell's products these days. (My Foolish colleague, Seth Jayson, is one of those people.) Its reputation for customer service has also dropped. In the competitive sense, maybe it's a good day to be HP, given Dell's sad state of affairs -- and a good day to be Apple
Dell's last-quarter earnings statement was a poster child for negativity (not that that's been in short supply lately). And of course, let's not forget that these were preliminary figures, given the SEC's accounting probe. Sales and earnings both dropped. Margins were on the decline, too.
There are, of course, some bright spots, which I'm sure my dueling partner Matt Koppenheffer will address. Microsoft's
Over the course of the last 12 months, Dell's stock has dropped by about 20%. However, that doesn't mean it's cheap, either. It's trading at 18 times earnings, and while that may sound reasonable for a tech company, I can't consider it reasonable for a tech company that's pressed for growth and has some serious work to do dealing with its problems. My Foolish colleague Tim Beyers recently theorized that things could get worse for Dell before they get better, and I agree. There are many unknowns, and that's on top of known problems like market-share loss and quality control.
After all, there is some talk that the way Dell's been accounting for warranty reserves might have been inflating earnings. Furthermore, although there's no word yet, there's the possibility that it may have to restate some of its historical financial statements. None of this is good news, to say the least.
Michael Dell has vowed to transform his namesake company now that he's back in the driver's seat. However, given the issues I cite above, there's an awful lot to transform. Some cheap stocks are cheap for a reason (which, of course, may eventually show those prices were actually dear), and I consider Dell to be one of those stocks at this juncture.