Stock Analysis

If You Had Bought DXC Technology's (NYSE:DXC) Shares Three Years Ago You Would Be Down 70%

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NYSE:DXC
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It is doubtless a positive to see that the DXC Technology Company (NYSE:DXC) share price has gained some 66% in the last three months. But that doesn't change the fact that the returns over the last three years have been disappointing. In that time, the share price dropped 70%. So it is really good to see an improvement. The rise has some hopeful, but turnarounds are often precarious.

View our latest analysis for DXC Technology

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

DXC Technology has made a profit in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn't reliably profitable. Other metrics may better explain the share price move.

With revenue flat over three years, it seems unlikely that the share price is reflecting the top line. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
NYSE:DXC Earnings and Revenue Growth January 27th 2021

DXC Technology is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between DXC Technology's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. DXC Technology's TSR of was a loss of 64% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

Investors in DXC Technology had a tough year, with a total loss of 12%, against a market gain of about 27%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 3% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 1 warning sign for DXC Technology that you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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What are the risks and opportunities for DXC Technology?

DXC Technology Company, together with its subsidiaries, provides information technology services and solutions primarily in North America, Europe, Asia, and Australia.

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Rewards

  • Trading at 64.7% below our estimate of its fair value

  • Earnings are forecast to grow 5.56% per year

  • Became profitable this year

Risks

  • Significant insider selling over the past 3 months

  • Has a high level of debt

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1Y Return

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