Dell stock forms inverted H&S pattern before earnings

Dell stock price remains in a technical bear market after falling by nearly 30% from it highest point in November last year.

It was trading at $119 on Tuesday as investors waited for the upcoming earnings.

Technicals suggest that the stock will bounce back in the near term.

Dell stock price forms a bullish pattern ahead of earnings

The weekly chart shows that the Dell share price peaked at $167 in November last year.

Its highest level in November was notable as it coincided with its peak in May 2024.

On the positive side, the stock has formed an inverted head-and-shoulders pattern, a common bullish reversal sign in technical analysis.

This pattern’s head was at $64, while the left shoulder was at $85.

It is now in the process of forming the right shoulder of the inverted head-and-shoulders pattern.

The Relative Strength Index (RSI) has turned around and is nearing the neutral point at 50.

Therefore, there is a likelihood that the stock will rebound in the near term, potentially after releasing its earnings results this year.

If this happens, the next key target to watch will be at $150, which is about 25% above the current level.

On the other hand, a move below the key support at $110 will invalidate the bullish outlook.

A drop below that price will point to more downside to $100.

Dell stock chart | Source: TradingView

Dell Technologies' business is thriving

The ongoing Dell stock price has retreated even as the business continues booming.

Data compiled by Seeking Alpha shows that its business has done well, with its annual revenue rising from over $86 billion in 2021 to over $95 billion in the last financial year.

It also rose to over $104 billion in the trailing twelve months (TTM).

At the same time, the net income has continued soaring, with its annual net income rising to over $4.5 billion in the last financial year.

The most recent results showed that the company's business is thriving as data center spending booms.

Its recent results showed that its revenue rose by 11% to over $27 billion, with its profit continuing to accelerate.

The Infrastructure Solutions Group (ISG) revenue rose by 24% to over $14.1 billion, with servers and networking hitting $10.1 billion.

Demand for these products has soared as companies like Meta Platforms, Microsoft, CoreWeave, and Google have boosted their data centre spending.

The four biggest names are expected to make over $650 billion this year, some of which will go to Dell, which provides products such as storage, servers, and networking solutions.

Dell’s main challenge is its Client Solutions Group (CSG), whose revenue rose by 3% to over $12.5 billion.

This division may slow down this year because of the ongoing memory shortage, which has accelerated this year. 

Wall Street analysts believe Dell’s revenue growth will be strong.

The average estimate is that its upcoming revenue will be $31.6 billion, up by 32% YoY.

For the year, the annual revenue is expected to be $111 billion, followed by $125 billion next year.

Valuation metrics show that Dell Technologies has become a bargain.

Its forward price-to-earnings ratio has dropped to 11, much lower than the sector median of 22.

Its forward PEG ratio has dropped to 0.86, also lower than the sector median of 1.37.