If your point is that the rocket ride on Dell is over,
I agree with you. I'm glad I caught it somewhere in mid-
course. Would have been much better if I'd bought earlier, of
course. (Truth is, I never really focused on Dell's extraordiary
financial performance until its stock performance propelled it
to major business press notice. For that I paid the price of
missing most of the percentage growth this year. But when I did
focus (at price averaging 90) I was able to see that the game
wasn't over. That Dell deserved to be valued differently from
historically, and that the market wasn't just going momentum
blue sky crazy with Dell. (As it has with ATHM, for example.)
Multiple expansion land is now over, I agree. For it not to be, Dell
would have to trade at a premium to its forward growth rate. Even I agree that that is unreasonable, given its lack of a lock on its
position. But the mistake most people make about Dell is
viewing it as having no advantages that someone else can't easily
copy if they just woke up.
The comparison someone make with Walmart was very astute, IMHO.
The really risky stock in this space IMHO is Compaq. It's been
losing market share big time to Dell. So it had a good quarter.
Finally woke up and did some things right. But the Compaq CEO's
announcement that Compaq is going to do a major change in its
business model, and capture all that Dell does right by the
flaky -- in my opinion -- concept of having retailers do final
assembly. THAT is risky.
I guess he had to say something to keep his multiple from really
contracting. Instead he got it to expand.
As for Dell -- from here there might even be some multiple contraction. But the view that Dell should go back to trading at a multiple in the teens , as per its history, is IMHO wrong. Although its rare, once in a while Cos do come to be valued differently (ie at different from historical multiple ranges) by the street. In my view
that is clearly what has happened with Dell.
Examples of it happening elsewhere are Intel. Intel used to trade
with the rest of the Semis. Then in 95 the street began to realize
it shouldn't. Won't go into why here, but it was/is clear as day to me. And was in that case fairly early on. Got into Intel in the 50s (pre-split). Actually, I predict Intel's multiple will undergo another expansion. Intel SHOULD trade at a premium to its long term
growth rate. Why? Because its about as certain as anything in this life that Intel will continue to grow in the 18-25%/year range, on average, as far as they eye can see.
The problem with Intel, for the Street, is of course that little phrase "on average". But that is how thee and me can make money.
With Dell,the ride based on earnings growth alone will, IMHO be a good one.
Most people who chase the doubling home runs end up striking
out most of the time, in my experience. (Been there, done that
in the fairly distant past.)
Replacing the rocket ship searching momentum investors will be/are
the major cap relatively safe growth investors IMHO.
Dell safe???? you say. Yes, I think so. What makes Dell a bit
unsafe is that no one really knows at what new multiple of earnings
Dell will settle down to trade at. And clearly, if Dell signif. disappoints, its new status could be in jepardy.
There will continue to be corrections, like todays. That process
is healthy, since it encourages new people to buy. A lot of people
only measure value by looking backwards. So if Dell is off its high,
to them it becomes a value, since it clearly could go back up there
again.[g] |
