Dell Technologies(NYSE: DELL) returned to the public markets in December 2018, nearly six years after its founder and CEO, Michael Dell, took the company private in a $25 billion deal. In 2021, Dell spun off its 81% stake in the cloud software giant Vmware, which was in turn acquired by Broadcom last November.
If you had invested $10,000 in Dell when it returned to the NYSE, your original shares (which lost about half their market value when it spun off its stake in Vmware) would be worth about $28,900 today. You would have also received 0.44 shares of Vmware for every share of Dell you owned in 2021, and you could have converted each of those shares to 0.25 shares of Broadcom last year. That spun-off stake would be worth about $32,000 today.
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In other words, your $10,000 investment in the "new" Dell would be worth roughly $60,900 today and pay nearly $1,000 in annual dividends. That's a nice gain, but it wouldn't have made you a millionaire on its own. So, if we expand our investment time horizon to a few decades, could Dell turn a fresh $10,000 investment into more than $1 million?
How fast will Dell grow over the next few years?
Dell operates two main businesses: the client solutions group, which sells its PCs and PC peripherals, and the infrastructure solutions group, which sells its servers and storage products. In fiscal 2024 (which ended this February), it generated 55% of its revenue from the client solutions group and 38% from its infrastructure solutions group.
For the full year, Dell's revenue declined 14%. Its client solutions revenue fell 16% as the PC market's post-pandemic slump continued, and its infrastructure solutions revenue dropped 12% as its sluggish storage product sales offset its stronger server sales. Its adjusted earnings per share (EPS) declined 6%.
Those numbers are disappointing, but Dell expects both businesses to "return to growth" in fiscal 2025 as the PC market stabilizes, it sells a higher mix of artificial intelligence (AI)-optimized servers, and its storage solutions business catches up with the server market. It also reiterated its long-term goals of growing its annual revenue by 3%-4%, its adjusted EPS by at least 8%, and returning more than 80% of its adjusted free cash flow (FCF) to its investors through buybacks and dividends.
For fiscal 2025, analysts expect both Dell's revenue and its earnings to rise about 6%. For fiscal 2026, they expect its revenue and earnings to grow 6% and 13%, respectively. Its stock still looks reasonably valued at 18 times forward earnings, and it pays a forward dividend yield of 1.6%.
By comparison, HP, which sells only PCs and printers, trades at just 8 times forward earnings but is growing at a slower rate. Hewlett-Packard Enterprise, which competes against Dell's infrastructure business, is also generating slower growth and trades at 10 times forward earnings.
The mathematical path toward a millionaire-maker gain
To turn $10,000 into $1,000,000, your investment in Dell would need to generate a 100-bagger gain. That would be asking a lot from a tech giant that already has a market cap of $95 billion. Even if Dell's valuations hold fairly steady and it grows its EPS at a compound annual growth rate (CAGR) of 8% over the next 30 years, its stock would only be trading at about $1,300 per share by the final year. That would turn a $10,000 investment into nearly $100,000.
So, unless you're willing to invest a lot more money into Dell, it probably won't generate millionaire-making gains on its own within the next few decades. That said, I believe it's still a decent blue chip tech stock to add to a long-term portfolio, and it's a balanced way to invest in the secular growth of the PC, server, and data storage markets.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends HP. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
