Dell, Inc. (DELL) was the last of the major tech companies to report earnings, and the results for the period ended Aug. 1 were less than spectacular. Dell’s net income slipped 17% from the same period a year ago. In addition, earnings shrank from $746 million or 32 cents per share to $616 million or 31 cents per share. Sales slumped in the U.S. and Western Europe, as macroeconomic concerns hurt consumer spending. Of further concern was the relatively large decline in gross margins from 18.4% to 17.2%. Dell was attempting to gain market share in emerging markets in order to prevent its biggest rival HP (HPQ) from getting a foothold. In order to accomplish its goals overseas and increase sales domestically, the company was forced to aggressively lower prices. The result was more sales—revenue was up 11%—but with less bang for each buck. Not surprisingly, Dell’s stock has taken a beating today—at the moment, shares are down more than 12% on heavy trading volume.

The earnings results were disappointing to us as well but not all of the data was bad. For example, Dell’s initiative to cut costs is starting to yield results; the company reporting operating expenses that were lower than in any of Dell’s last six quarters. One of the most widely know ways in which DELL cut costs is by reducing its headcount by nearly 9,000 workers. The company has also driven down supply chain prices and its new line of laptop computers are said to have substantially reduced production costs, which should have a positive effect on margins going forward.

There is little doubt these days that the global economy is in a slowdown, but it is foolish to think that opportunities do not exist outside the U.S. in other developed economies. For computer makers, India and China will be major export markets for years to come, simply because of sheer population size combined with the ever-more-affordable price of technology. Even if the break-neck growth of these economies maybe cooling, there is no doubt that they will continue to grow for the foreseeable future. For Dell, we think it makes since to drop prices now—even if it squeezes margins—in order to better compete with the likes of HP and Lenovo.

Ockham Research has been bullish on Dell stock for some time, but the stock has yet to find a catalyst to push it back to more historically normal price levels. Including today’s drubbing, DELL is down more than 21% over the last year. However, while it may take a long-term perspective, we believe that the underlying value in the Dell will not go unnoticed forever. We studied what the market has historically been willing to pay for Dell on a cash and sales basis and the shares look undervalued. Traditionally, the market has been willing to pay between 1.36x and 2.42x sales per share for Dell, but currently that metric has fallen to .85x (before today’s drop). Likewise, Dell is 49% below the historical average level of price-to-cash flow, again prior to today’s market action. There is compelling value in Dell at current levels—even before the drastic price drop of today. Ockham rates Dell a Buy for long-term investors.