Rumors of Dell going private really took off back in June when, at the Sanford C. Bernstein investor conference, CEO and founder Michael Dell, well, mentioned that he had considered that strategy.

Then earlier this month, CFO Brian Gladden poured some gas on the flames when he said the debate was still alive in Austin, saying that Dell (DELL) had spent “a whole lot of time thinking about this,” but “it’s not something we think is going to happen anytime soon.” To listen to the message from Dell’s C-Suite is to hear that privatizing is discussed and seriously considered. (But a few weeks after the talk, a spokesperson tried to temper the discussion, saying: “There is no ongoing plan, or exploration of taking the company private.”)

While the move would seem to make a whole lot of sense — at the very least, it would eliminate the pack of pesky journalists trying to decode the truth– it doesn’t make much sense from an investor’s point of view.  Going private may be a nice dream, but for Dell, it’s not a dream worth making coming true.

Why?

Well, for one, it’s unrealistic. Dell has such a large market cap—about $26 billion—that taking the company private would probably require several private equity firms teaming up. That would be a tricky process, says Abhey Lamba, an IT hardware analyst in the Technology Research team at investor firm International Strategy & Investment. He says that kind of multiple-firm agreement is unlikely. Privatizing Dell would place it among the biggest private equity deals in history, across all industries, not just tech.

But even if a coalition of private equity powerhouses and Michael Dell himself could pool the money, why would they? Dell’s problems aren’t ones that can be solved by cost-cutting or centralizing back office issues — two favorite tactics of buy-and-flip PE firms. Dell needs to undergo a transformation — likely, an expensive transformation — from selling PCs and gear, to becoming an enterprise and consulting powerhouse. IBM (IBM) and HP (HPQ) have shown how it can be done right.

For years, Dell was focused on increasing margins on hardware sales through its revolutionary “just in time” model for low-inventory, high-volume computer sales. But as this chart shows, the margins in the PC hardware business have eroded beyond Dell’s ability to extract efficiencies and profitability — that business for Dell has been in a near-steady decline.

(Chart from Wikinvest)

“In the past, when you asked [Dell] about innovation, they would talk about supply chain,” says Jayson Noland, an IT systems and networking senior research analyst at Baird. But other tech companies such as HP and Acer started using a model of outsourcing PC development to Asian companies such as Foxconn and Flextronics.

Dell, once the company everyone wanted to be, has become a low margin assembler (see chart below). Going private might help it juice margins slightly, but not enough to come close to any of the new market leaders.

(Chart from Wikinvest)

Going private also presents an issue if Dell is going to pivot its focus to return to enterprise customers — one customer group that still values the Dell ability to quickly build, ship and support PCs. To get up to speed on enterprise quickly, Dell will have to purchase other companies who are ahead in the game. The best tool Dell has to buy and retain enterprise experts is, analysts believe, its stock.

Dell has been open about its strategy to buy. “We’ve been very clear that our intent is to consider strategic acquisitions, primarily in the enterprise solutions and services area that can either complement and expand our capabilities,” says spokesperson David Frink. He also says that he’s satisfied with Dell’s integration of companies they’ve already bought like Perot, an enterprise solutions service company purchased in September 2009 for $3.9 billion, and EqualLogic, a data storage company purchased in 2007 for $1.4 billion.

So Dell can’t afford to go private. But how does it make it going public work? There are a few tough routes it could take:

Dell could buy a series of small companies. “I think they really do want to try to have base hit singles, as opposed to trying to hit the ball out of the park, because if one fails it’s not as big of a deal,” says Noland. The upside of this method is that Dell will stay well within its operating cash flow and won’t have to worry if one of the acquisitions doesn’t work. The company has shown some signs that it leans toward this trend. Dell recently bought software-as-a-service company Boomi earlier this month, two months after losing a bid for 3PAR to HP.

However, those base hits will have to add up to runs on the scoreboard to matter. “That type of a strategy is great for companies whose core business is doing well,” says Lamba, but Dell needs to work on its core. “When you’re having issues in core, that’s a long and a hard journey. By the time those acquisitions yield results, competition will have moved too far ahead.”

Dell could try for one big company-changer. The issue with buying small is that even phenomenally growing small companies still produce revenue that’s not material for a giant like Dell. Purchasing or merging with a large company would mean more risk, but it would move growth numbers faster for a company Dell’s size.

Of course, buying a company means figuring out what to do with it. “Integration’s going to be difficult with companies that are all over the place in different markets in different cultures,” Noland says. “It makes it hard for Dell to retain talent, and then to integrate start-ups into a company that’s not exactly fun and foosball tables.”

Even though the company has emphasized a major shift to enterprise, it shouldn’t and can’t ignore the PC market, says Lamba. 50% of Dell’s revenue comes from PC sales, Dell CFO Gladden said. Enterprise sales are directly tied to the job market, and while unemployment is barely creeping down, Dell is likely to get an outsized share of at least the new-PC component for businesses that are growing.

The takeaway: shareholders hoping for Michael Dell to come in and buy back the company — and juice the stock in the process — should probably end their daydreams. The best hope for Dell is to reinvest, not retreat.