Dell Incorporation: Investment Strategy Harvard Case Solution & Analysis

Dell Incorporation: Investment Strategy Case Study Help

In contradiction to the ratio analysis; the valuation metrics is analyzed with core considerationover assessing the performance of stock of Dell and comparing it with its competitors’ stock performance. In reference to the Exhibit 7 of the case; the stock performance of Dell shows a declining trend, following the significant reduction in the share price of Dell from 22.85 in 2007 to 19.9 in 2008. While comparing Dell’s stock performance with its competitors; it can be seen that the price of Apple and Hewlett-Packard’s stocksare higher than the stock price of Dell, which means that the investors would doubt the company’s earning potential and future viability. Similarly, the earning per share of Dell is lower than the earning per share of Apple and Hewlett-Packard, which indicates that the company is in trouble and could end up having a significant decline in its stock price. In 2007, the price earnings ratio of Dell is lower than that of Lenovo and Apple.Similarly, the decline of 20.1 in 2007 and 15.2 in 2008 in the company’s price earnings ratioshows that it is undervalued on account of its lower stock price trade related to its fundamentals and the investors could not expect high earnings.  In similar way, the market capitalization of Apple andHewlett-Packard are greater than market capitalization of Dell, and the company has experienced a significant decrease in its market capitalization from $52892 million in 2007 to $44715 million in 2008, which means that the market value of company’s share is not high due to which the investors could not expect a consistent increase in its dividend payment and share value in long run.

The steady but remarkable success of the company with the passage of time, could not be ignored in the PC manufacturing market. Dell has grown by tripling its market share faster than its competitors. The company has wisely used extensive innovation in order to become more prominent and prosper. The company has also captured newmarkets, such as: retail channels and direct models.

The efficiency of Dell is based on direct model in which the company engages and communicates directly with its customers. The company has an intent to sell its products directly to its their customers without any presence of amiddleman due to which, the distribution channel became cheap and inexpensive for thecompany. There was no markup of the dealer that the company has to pay. The company has rolled out the comprehensive growth plan. Dell’s end user computing growth plan is based on various factors, such as: obtaining new customers, simplifying the services or products as well as scaling alternative solutions.These strategies would drive the company’s long term growth due to which trinity should not sell its position. (Moorhead, 2013). The advantages of built- in price is enjoyed by the company after eliminating the need for a middleman and inventory. This proved to be the competitive advantage for the company, as it provides a way through which the company fared against its competitors.

Buy hold or sell shares

The decision of making massive investment in the PC industry is excellent as the industry is highly profitable and it has been constantly redefining itself in the world because of its deep routes with every industry. The industry is highly competitive as well as profitable, acting as a gateway for the investors to maximize their market share.

On the basis of quantitative evaluation, using the financial ratios; Chan is advised to sell the shares and switch strategies and make investment in up-and-coming market competitors,such as: Apple and Hewlett-Packard which have strong financial performance in the highly competitive market and offer healthy returns to their investors. The weak earning potential and future viability of Dell does not provide any strong evidence of holding shares in the company.

Dell is recognized as the market player with brand image and distinct model of supply chain management, which sells customized products in order to meet the burgeoning personal-computer demand and the progress as well as prospects of the company evident.The company has successfully sustained a competitive advantage in terms of efficient distribution and supply chain system as compared to the market competitors. Despite of this,the market competitors in PC industry has extensively used innovative ales model and the financial performance of Dell is not strong.The performance of stock is poor and the sales growth, price of stock and future potential of the stock based on PE ratioare also decreasing, due to which Chan is recommended to sell his investment in Dell. If Trinity Fund Inc. would invest in any of Dell’s competitors, such as: Hewlett-Packard & Apple, it would result in various market opportunities to be explored or captured, in an effort ofmaximizing the market share and strengthening the market position.............................

 

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