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Technology Stocks : Dell Technologies Inc.
DELL 133.59-1.8%3:59 PM EST
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To: Tom Lu who wrote (9745)7/15/1997 11:56:00 AM
From: David Rubin   of 176387
 
You make some valid points, however:

1. DELL's PE is higher because their growth rate is higher. DELL's earnings grew well over 100% this year, Compaq did not come close to that growth. Also, it's been said that investors are now willing to give the entire industry a higher multiple, mostly due to DELL's success.

2. You are correct in that the other companies will try harder to compete with DELL. But DELL has a tremendous head start. Michael Dell is a very sharp man and has turned his company into a lean machine. Competition in the direct sale market will heat up, but DELL's head start and ongoing optimization of the "build to order" model will keep their margins higher than the competition. If a price war does erupt, DELL will be hurt the least.

3. Technical analysis may indeed show that this stock is due for a correction, but the positive news about the industry has fueled this stock, as well as CPQ and others. Also, right now DELL is a pure momentum play for many investors. I think DELL's PE will need to get into the 50's before the tide starts to turn. I agree that when the correction does occur, it will probably be a steep one (30% or more). That will just be another buying opportunity for the long-term growth investors!
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