CDW (NASDAQ:CDW), a reseller of technology products and services, saw its stock rise about 7% on Wednesday after reporting stronger-than-expected Q1 2025 results, which saw adjusted earnings rise almost 10% to $286.5 million. Growth for the quarter was driven by rising demand for notebooks, desktops, mobile devices, software, and services.
Several industry trends are driving the company’s growth. For one, enterprises are boosting their investment in hybrid work tools and cloud-based software, boosting demand for mobile devices and software as a service tools. At the same time, public sector IT modernization, particularly in the healthcare and education space, is gaining traction. As IT needs grow more complex, companies are opting for partners who can deliver end-to-end solutions, and this is an advantage for CDW, which has wide offerings and a deep vendor network.
That said, the stock looks a bit risky, making it better to avoid at its current price of around $180. We believe there are a few concerns with CDW stock, which makes it risky despite its current valuation being moderate. We arrive at our conclusion by comparing the current valuation of CDW stock with its operating performance over the recent years as well as its current and historical financial condition. Our analysis of CDW along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a weak operating performance and financial condition, as detailed below. However, for investors who seek lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
How Does CDW’s Valuation Look vs. The S&P 500?
Going by what you pay per dollar of sales or profit, CDW stock looks cheap compared to the broader market.
• CDW has a price-to-sales (P/S) ratio of 1.0 vs. a figure of 2.8 for the S&P 500
• Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 16.7 compared to 17.6 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 19.8 vs. the benchmark’s 24.5
How Have CDW’s Revenues Grown Over Recent Years?
CDW’s Revenues have grown marginally over recent years.
• CDW has seen its top line grow at an average rate of 0.8% over the last 3 years (vs. an increase of 6.2% for S&P 500)
• Its revenues have declined 1.8% from $21 Bil to $21 Bil in the last 12 months (vs. growth of 5.3% for S&P 500)
How Profitable Is CDW?
CDW’s profit margins are much worse than most companies in the Trefis coverage universe.
• CDW’s Operating Income over the last four quarters was $1.7 Bil, which represents a poor Operating Margin of 7.9% (vs. 13.1% for S&P 500)
• CDW’s Operating Cash Flow (OCF) over this period was $1.3 Bil, pointing to a poor OCF Margin of 6.1% (vs. 15.7% for S&P 500)
• For the last four-quarter period, CDW’s Net Income was $1.1 Bil – indicating a poor Net Income Margin of 5.1% (vs. 11.3% for S&P 500)
Does CDW Look Financially Stable?
CDW’s balance sheet looks weak.
• CDW’s Debt figure was $6.0 Bil at the end of the most recent quarter, while its market capitalization is $23 Bil (as of 5/7/2025). This implies a moderate Debt-to-Equity Ratio of 28.1% (vs. 21.5% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $718 Mil of the $15 Bil in Total Assets for CDW. This yields a poor Cash-to-Assets Ratio of 4.9% (vs. 15.0% for S&P 500)
How Resilient Is CDW Stock During A Downturn?
CDW stock has seen an impact that was slightly worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock (2022)
• CDW stock fell 26.7% from a high of $208.13 on 4 January 2022 to $152.59 on 12 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 13 February 2023
• Since then, the stock has increased to a high of $257.87 on 27 March 2024 and currently trades at around $175
Covid Pandemic (2020)
• CDW stock fell 45.0% from a high of $144.60 on 15 January 2020 to $79.56 on 20 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 4 February 2021
Putting All The Pieces Together: What It Means For CDW Stock
In summary, CDW’s performance across the parameters detailed above are as follows:
• Growth: Neutral
• Profitability: Very Weak
• Financial Stability: Weak
• Downturn Resilience: Neutral
• Overall: Weak
Hence, despite its moderate valuation, this makes the stock look risky, which supports our conclusion that CDW may not currently be a good stock to buy.
While CDW stock looks unpromising, investing in a single stock can be risky. On the other hand, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
