- Wondering whether DXC Technology at around US$12.19 is starting to look like a bargain or a value trap? This article walks through what the numbers actually say about the stock.
- The share price has had a mixed run, with a 2.9% return over the last 7 days, a 15.5% decline over 30 days, a 13.4% decline year to date, and a 32.7% decline over the past year. Over longer periods, the 3 year and 5 year returns sit at declines of 57.2% and 56.5% respectively.
- These moves have kept DXC Technology on the radar for investors who focus on companies whose share prices have fallen significantly over multi year periods and want to know whether the current level reflects pessimism or something more fundamental. In that context, it can be useful to step back from the day to day price action and look closely at what different valuation methods suggest.
- Right now, DXC Technology scores 6 out of 6 on our valuation checks, indicating that it screens as undervalued across all of them. You can see this in more detail in our valuation score of 6. Next, we will walk through the main valuation approaches behind that score, then finish with a way to look at valuation that goes beyond just the headline metrics.
Find out why DXC Technology's -32.7% return over the last year is lagging behind its peers.
Approach 1: DXC Technology Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model projects the cash a company could generate in the future and then discounts those cash flows back to today to estimate what the business might be worth right now.
For DXC Technology, the latest twelve month free cash flow sits at about $878.3 million. The model used here is a 2 Stage Free Cash Flow to Equity approach, which starts with more detailed near term estimates and then shifts to extrapolated figures further out. Analysts provide explicit forecasts up to around 2027, where free cash flow is projected at $662 million. Beyond that, Simply Wall St extrapolates ten year projections, with free cash flow estimates such as $650 million in 2026, $662 million in 2027 and $595.9 million in 2035, all in dollar terms and discounted back to present value.
Putting those cash flows together, the model arrives at an estimated intrinsic value of about $32.46 per share. Against a current share price around $12.19, this suggests the stock may be trading below this modeled estimate of intrinsic value, with an implied difference of roughly 62.4%.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests DXC Technology is undervalued by 62.4%. Track this in your watchlist or portfolio, or discover 45 more high quality undervalued stocks.
Approach 2: DXC Technology Price vs Earnings
For a profitable company, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings, which makes it a straightforward cross check on the DCF work you saw above.
What counts as a “normal” P/E depends on how quickly earnings are expected to change and how risky those earnings are. Higher expected growth or lower perceived risk often lines up with a higher P/E, while slower growth or higher risk tends to go with a lower P/E.
DXC Technology currently trades on a P/E of about 4.9x. That sits below the IT industry average of around 21.3x and also below the peer group average of roughly 14.9x. Simply Wall St’s Fair Ratio for DXC Technology is 10.6x. This is a proprietary estimate of the P/E that might be reasonable given factors such as the company’s earnings profile, industry, profit margin, market cap and key risks. Because it pulls these elements together, the Fair Ratio can be more tailored than a simple comparison with peers or the broad industry.
Comparing the Fair Ratio of 10.6x with the current P/E of 4.9x, DXC Technology screens as trading below that Fair Ratio.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your DXC Technology Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page. Here you describe your view of a company like DXC Technology, link that story to your own revenue, earnings and margin assumptions, and see how those inputs flow through into a Fair Value. You can then compare this with the current price to help decide whether to buy, hold or sell. The model updates automatically as new information such as earnings or news arrives. For example, one investor might build a cautious DXC Technology Narrative that lines up with a Fair Value of about US$13.00, while another might use more optimistic assumptions that lead to a Fair Value closer to US$16.00. You can immediately see how your expectations differ and what that implies for your own decision making.
Do you think there's more to the story for DXC Technology? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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