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Politics : Ask Michael Burke

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To: Chuzzlewit who wrote (71027)	11/27/1999 9:47:00 AM
From: Freedom Fighter	Read Replies (2) of 132070

CTC, I won't argue with the mathematics or theoretical basis for your valuation of Dell. I'm aware that the majority of analysts on Wall St. use such models and they are what is generally taught to finance students. Personally, I have a problem with using such models on technology stocks. The history of technology companies is that they have big runs before eventually losing their business position to other competitors or having their own technology become obsolete. Of course, there are exceptions. I also realize that you used the very high discount rate to capture those business risks. However, as a computer consultant, I believe the 'PC' is more vulnerable to changing technology or competition than most. (even Dell) I think companies like Coke, PG, and other such consumer franchises are better suited to models that make use of long term growth assumptions. On the inputs I have just a couple of points. A not insignificant portion of Dell's free cash is used to buy back exercised options in order to avoid dilution of the shares. I believe you should adjust the free cash flow down to reflect those repurchases or lower the growth in per share progress to reflect the dilution. Wayne

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