Is DXC Technology Co Modestly Undervalued? An In-depth Valuation Analysis
DXC Technology Co (NYSE:DXC) experienced a daily gain of 3.57%, despite a 3-month loss of -10.86%. The company also reported a Loss Per Share of 2.84. This article seeks to determine whether DXC Technology Co is modestly undervalued and provides an in-depth valuation analysis. We encourage readers to delve into the analysis to gain a comprehensive understanding of the company's value.
Company Overview
DXC Technology Co is a vendor-independent IT services provider with operating segments that include Global Business Services (GBS) and Global Infrastructure Services (GIS). The company generates maximum revenue from the GIS segment, which offers Cloud and Security, IT Outsourcing, and Modern Workplace services. The majority of its revenue comes from the Other Europe region.
The company's stock price currently stands at $20.04 per share, with a market cap of $4.10 billion. When compared to the GF Value of $28.25, it appears that DXC Technology Co's stock is modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, the GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of the business performance.
DXC Technology Co's stock appears to be modestly undervalued according to the GF Value. This estimate suggests that the stock's fair trading value should be around the GF Value Line. If the stock price is significantly above the GF Value Line, it's overvalued and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher.
Given that DXC Technology Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. A great way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. DXC Technology Co has a cash-to-debt ratio of 0.29, which is worse than 83.83% of companies in the Software industry. The overall financial strength of DXC Technology Co is 5 out of 10, which indicates that the financial strength of DXC Technology Co is fair.
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 over the past 10 years. Over the past twelve months, the company had a revenue of $14.20 billion and Loss Per Share of $2.84. Its operating margin is 2.17%, which ranks worse than 51.03% of companies in the Software industry. Overall, the profitability of DXC Technology Co is ranked 5 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of DXC Technology Co is -5.9%, which ranks worse than 79.43% of companies in the Software industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital to the weighted average cost of capital is another method of determining its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, DXC Technology Co's return on invested capital is 1.61, and its cost of capital is 5.81.
Conclusion
Overall, DXC Technology Co (NYSE:DXC) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 0% of 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.
