15 Feb Is Dell’s stock undervalued? Undervaluation means that investors are pricing a company below its intrinsic value. Since Dell can be considered a mature company under stable growth,
Is Dell’s stock undervalued? Undervaluation means that investors are pricing a company
below its intrinsic value. Since Dell can be considered a mature company under stable growth, its
intrinsic value can be calculated as a growing perpetuity, like this:
Intrinsic Market Cap= [Normalized FCFE x (1 + g)] / [Ke – g]
where FCFE is the free-cash-flow to-equity that belongs to shareholders, g is the growth rate in perpetuity of FCFE, and Ke is the cost of equity capital. Using your spreadsheet dashboard and the data in Exhibit 2, estimate Dell’s intrinsic value per share. (What about using multiples to find intrinsic value?) Is the market materially undervaluing Dell’s shares? If that’s so, would there be a bright side to situation?
Exhibit 2:
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