Is DXC Technology Co Modestly Undervalued? - A Comprehensive Analysis
DXC Technology Co (NYSE:DXC) recently posted a daily gain of 2.33% despite a 3-month loss of 16.69%. The company reported a Loss Per Share of 2.84. This raises the question: Is the stock modestly undervalued? In this article, we will explore the valuation analysis of DXC Technology Co to answer this question. Let's dive in.
Company Introduction
DXC Technology Co is a leading, vendor-independent IT services provider. The company operates through two primary segments: Global Business Services (GBS) and Global Infrastructure Services (GIS). The majority of its revenue is derived from the GIS segment, which includes Cloud and Security; IT Outsourcing and Modern Workplace. The company's significant revenue contribution comes from the Other Europe region.
Currently, DXC Technology Co's stock price stands at $20.84 per share, with a market cap of $4.30 billion. When compared to the GF Value of $28.31, it suggests that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It is 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 denotes the stock's fair trading value.
According to GuruFocus Value calculation, DXC Technology Co (NYSE:DXC) is estimated to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. DXC Technology Co has a cash-to-debt ratio of 0.29, ranking worse than 83.42% of 2750 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, is less risky. 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 50.92% of 2720 companies in the Software industry. Overall, the profitability of DXC Technology Co is ranked 5 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of DXC Technology Co is -5.9%, which ranks worse than 79.41% of 2389 companies in the Software industry.
ROIC vs WACC
Comparing the return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining the profitability of a company. For the past 12 months, DXC Technology Co's ROIC is 1.61, and its WACC is 6.04.
Conclusion
Overall, DXC Technology Co (NYSE:DXC) stock is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 0% of 1990 companies in the Software industry. To learn more about DXC Technology Co stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
