DXC Technology Co (DXC) Valuation: A Hidden Gem or Overpriced Stock?
DXC Technology Co (NYSE:DXC) recently experienced a daily loss of -9.17%, bringing its 3-month loss to -27.54%. With a Loss Per Share of 2.84, the question arises: is the stock modestly undervalued? This article presents a detailed valuation analysis of DXC Technology Co, offering insights into its intrinsic value and market performance. Let's dive in.
Company Overview
DXC Technology Co is a leading, vendor-independent IT services provider. The company's operations are divided into two 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. Geographically, the Other Europe region contributes most to the company's revenue. As of October 17, 2023, DXC Technology Co has a market capitalization of $4.10 billion and reported sales of $14.20 billion.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. 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 on our summary page provides an overview of the stock's fair trading value.
According to GuruFocus' valuation method, DXC Technology Co (NYSE:DXC) is modestly undervalued. The GF Value of DXC Technology Co is $28.52, while its current share price is $20.21. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns.
Given that DXC Technology Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing in its stock. DXC Technology Co has a cash-to-debt ratio of 0.29, which ranks worse than 82.23% of the companies in the Software industry. GuruFocus ranks DXC Technology Co's overall financial strength at 5 out of 10, indicating fair financial strength.
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 out of the past 10 years. Over the past twelve months, the company reported a revenue of $14.20 billion and a Loss Per Share of $2.84. Its operating margin of 2.17% ranks worse than 51.16% of the companies in the Software industry. Overall, 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 annual revenue growth is -5.9%, ranking worse than 79.41% of the companies in the Software industry. The 3-year average EBITDA growth rate is 0%, ranking worse than 0% of the companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to assess its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, DXC Technology Co's ROIC was 1.61, while its WACC came in at 6.55.
Conclusion
In conclusion, DXC Technology Co (NYSE:DXC) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 0% of the companies in the Software industry. For more information about DXC Technology Co stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
