Is Dell Technologies (DELL) a Buy, Sell, or Hold?

Stock Market

At first glance, it might look like Dell Technologies (NYSE:DELL) stock offers a good value and dividends combo. Don’t fall headfirst into a value trap, however. Now is a time to exercise prudence as, despite the company’s foray into the cloud, Dell is likely to continue struggling amid a weak personal computer (PC) market.

Dell fared well during the post-pandemic technology boom. But then, so did a lot of publicly listed tech businesses. Many of those same companies faced a reckoning in 2022, and Dell’s investors took a sizable loss that year.

Value hunters might be tempted to invest in Dell now, but please be careful.

It might actually be a time for selling rather than buying, as much of Dell’s business comes from a tech segment that’s definitely not in growth mode.

Dell Might Not Really Be Committed to Cost-Cutting

I love a bargain as much as anyone, and I can see why some folks might be drawn to DELL stock now. Dell’s price-to-earnings (P/E) ratio of around 18x is enticing, and income earners might find it hard to resist Dell’s 3.2% dividend yield.

That’s all fine and well, but bear in mind that some stocks are cheap for a reason. Furthermore, earning 3% yield in a year won’t be much of a consolation prize if the Dell share price tumbles in 2023.

It’s certainly not a good sign that Dell is slashing around 6,650 positions, presumably as a cost-cutting effort. Is the company truly committed to reducing its expenditures, though? That’s a valid question, as Dell just spent roughly $100 million to acquire Israeli cloud-computing startup Cloudify.

Cloud Foray May Be Too Little to Save DELL Stock

Dell has to compete with cloud-market behemoths like Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Sorry to say it, but Dell’s venture into the cloud might not succeed and could end up costing the company millions of dollars.

Frankly, even if Dell’s move into cloud computing turns out to be successful, it probably won’t be enough to save the company from financial stress in 2023. Dell continues to rely heavily on the personal computer market, and that’s a major problem.

Per Bloomberg, 55% of Dell’s revenue comes from PCs. Unless Dell reduces that number drastically, the company is bound to deliver poor financial results. Alarmingly, International Data Corp (IDC) observed that Dell’s PC shipments plunged 37.5% during 2022’s fourth quarter.

Co-Chief Operating Officer Jeff Clarke acknowledged that, for Dell, market conditions “continue to erode with an uncertain future.” This certainly isn’t a statement that prospective investors should want to hear. Unless you’re envisioning a powerful and unexpected rebound in the PC market, it’s wise to steer clear of DELL stock.

So, Is DELL Stock a Buy, Sell, or Hold?

Should investors be enticed by Dell’s seemingly reasonable P/E ratio and decent dividend? I would say no, as despite a recent move into the cloud, Dell’s business still depends heavily on unreliable PC sales.

Therefore, I would consider DELL stock a sell in 2023. This doesn’t mean Dell is dead in the water. Maybe someday, the company can transition to a different business model. Or, the PC industry might show signs of life someday. Right now, however, Dell shares are a no-go for cautious traders.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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