DXC Technology Co (DXC): A Deep Dive into Its Performance Potential
Long-established in the Software industry, DXC Technology Co (NYSE:DXC) has enjoyed a stellar reputation. It has recently witnessed a surge of 3.1%, juxtaposed with a three-month change of -24.19%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of DXC Technology Co.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 5/10
Profitability rank: 5/10
Growth rank: 1/10
GF Value rank: 9/10
Momentum rank: 4/10
Based on the above method, GuruFocus assigned DXC Technology Co the GF Score of 65 out of 100, which signals poor future outperformance potential.
DXC Technology Co: A Snapshot
DXC Technology Co is a vendor-independent IT services provider with a market cap of $4.23 billion. The company's operating segments include Global Business Services (GBS) and Global Infrastructure Services (GIS), with the latter generating the majority of its revenue. Geographically, it derives a majority of revenue from the Other Europe region. The company's sales stand at $14.17 billion with an operating margin of 2.17%.
Financial Strength Analysis
DXC Technology Co's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 1.34 positions it worse than 93.81% of 1550 companies in the Software industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Scoreis just 0.63, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.29 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 6.82, which is above Joel Tillinghast's warning level of 4 and is worse than 90.15% of 1391 companies in the Software industry.
Profitability Analysis
DXC Technology Co's low Profitability rank can also raise warning signals. The company's Operating Margin has declined over the past five years ((-81.29%)), as shown by the following data: 2019: 9.06; 2020: 3.49; 2021: -2.22; 2022: 2.81; 2023: 2.01. Additionally, DXC Technology Co's Gross Margin has also declined over the past five years, as evidenced by the data: 2019: 27.98; 2020: 23.89; 2021: 20.55; 2022: 22.02; 2023: 22.07. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where DXC Technology Co seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -5.9 per year over the past three years, which underperforms worse than 79.4% of 2413 companies in the Software industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, DXC Technology Co predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While DXC Technology Co has a rich history in the Software industry, its current financial indicators and growth prospects suggest that it may struggle to maintain its past performance. Therefore, investors should exercise caution and conduct thorough research before making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
