DXC Technology Co (DXC): A Modestly Undervalued Investment Opportunity?
DXC Technology Co (NYSE:DXC) has recently experienced a daily gain of 3.1%, although it has seen a 3-month loss of -24.19%. The company reported a Loss Per Share of 2.84. Given these figures, one might ask: Is DXC Technology Co (NYSE:DXC) modestly undervalued? This article aims to answer that question through a comprehensive valuation analysis. We invite you to delve deeper into the financial health and intrinsic value of DXC Technology Co.
Company Overview
DXC Technology Co is a vendor-independent IT services provider with a market cap of $4.20 billion. The company operates through two main segments: Global Business Services (GBS) and Global Infrastructure Services (GIS). The GIS segment, which includes Cloud and Security, IT Outsourcing, and Modern Workplace offerings, generates the majority of the company's revenue. The company has a significant presence in the Other Europe region.
As of September 14, 2023, DXC Technology Co's stock is trading at $20.6 per share, while the GF Value, an estimation of fair value, stands at $28.4. This discrepancy suggests that the company may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of a stock's fair trading value.
The stock of DXC Technology Co appears to be modestly undervalued according to the GF Value. If the stock price is significantly above the GF Value Line, the stock may be overvalued and yield poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued and offer higher future returns.
Given that DXC Technology Co is relatively undervalued, the long-term return of its stock is likely to exceed its business growth.
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Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's crucial to assess a company's financial strength before purchasing its shares. DXC Technology Co's cash-to-debt ratio is 0.29, ranking worse than 82.37% of 2751 companies in the Software industry. Based on this, GuruFocus ranks DXC Technology Co's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, typically poses less risk. DXC Technology Co has been profitable 5 times over the past 10 years. The company had a revenue of $14.20 billion and a Loss Per Share of $2.84 over the past twelve months. Its operating margin is 2.17%, ranking worse than 50.93% of 2731 companies in the Software industry. GuruFocus ranks DXC Technology Co's profitability at 5 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. DXC Technology Co's 3-year average revenue growth rate is worse than 79.4% of 2413 companies in the Software industry. The company's 3-year average EBITDA growth rate is 0%, ranking worse than 0% of 2010 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) can provide insights into its profitability. If the ROIC is higher than the WACC, the company is creating value for shareholders. For the past 12 months, DXC Technology Co's ROIC is 1.61, and its cost of capital is 6.08.
Conclusion
In conclusion, DXC Technology Co (NYSE:DXC) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 0% of 2010 companies in the Software industry. To learn more about DXC Technology Co, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
