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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread
VTI 330.06+0.2%Nov 7 4:00 PM EST
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To: Investor2 who wrote (507)7/24/2000 10:39:47 PM
From: Hank Stamper  Read Replies (1) of 10065
 
I2,
Re: Dell

From the Standard and Poors stock report, historical P/E
ratios:
Year...High..Low
2000...90....51
1999...73....19
1998...41....10
1997...23....04
1996...18....06
--------------
Mean 49 18
Grand Mean 33.5

Now, it seems that Mr. Market has been rather fickle with
Dell stock. Sometimes, like today he is very optimistic
about the grand future of the company and wants to pay in
the 80 dollar range for a dollar of current earnings. At
other times, he is downright negative and is willing to pay
6 bucks for the same current earnings.

Now, what if today was the day that Mr. Market was at his
gloomiest with Dell and offered 6 bucks for a buck of earnings.
That's $3.84 a share. Okay, Mr. Market would have to be really
depressed, maybe even suicidal to offer that low a price. Let's just say
he is at the mid-range. At current earnings, of .61 and a p/e of 33.5
he'd offer $21.12 per share.

Just to get to the mid-range in valuation, and that is not
a difficult assumption to suggest from the table
above, Dell would have to lose 50% based on today's
today's earnings.

Of course the case may be made that in a bear market,
mid-range in P/E is unrealistic.

I wonder what sort of response this analysis would generate in the Dell thread? <g>

Ciao,
David Todtman
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