Dell’s 21.2% return over the past six months has outpaced the S&P 500 by 15.5%, and its stock price has climbed to $138.68 per share. This run-up might have investors contemplating their next move.
Is now the time to buy Dell, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Dell Not Exciting?
Despite the momentum, we're cautious about Dell. Here are three reasons why there are better opportunities than DELL and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Dell grew its sales at a sluggish 1.4% compounded annual growth rate. This fell short of our benchmarks. 
2. Weak ARR Growth Points to Soft Demand
Investors interested in Hardware & Infrastructure companies should track ARR (annual recurring revenue) in addition to reported revenue. This metric shows how much Dell expects to collect from its existing customer base in the next 12 months, giving visibility into its future revenue streams.
Over the last two years, Dell’s ARR averaged 5% year-on-year growth. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in securing longer-term commitments. 
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Dell’s margin dropped by 9.9 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Dell’s free cash flow margin for the trailing 12 months was 3.9%.
Final Judgment
Dell isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 14.4× forward P/E (or $138.68 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.
Stocks We Like More Than Dell
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