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Technology Stocks : Dell Technologies Inc.
DELL 138.940.0%3:59 PM EST
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To: kaka who wrote (175817)2/6/2007 10:40:41 AM
From: GVTucker  Read Replies (1) of 176387
 
Nice article.

There's one thing holding me back, though. Tech stocks that have gone through bad times tend to trade down to book value. That is when you get to the scenario quoted in the article, when "Very quickly the whole thing turns into a circus and is completely divorced from reality". It happens over and over again. Most recently, before AAPL and HPQ turned things around, both companies traded below book value.

It is there that the stocks were great buys, the risk/reward was great. The book value provided a decent cushion if things didn't get better, and the valuation provided lots of upside if things got better.

The problem with DELL is that book value doesn't go up at all. Book value per share right now is about $1.50. The last time that book value was this low was way back in 1999. How can a company make the money that Dell has in the 2000's and have a declining book value? Simple--DELL continually gives away a ridiculous number of stock options to management, and tried to make up for this huge dilution by buying back shares when the stock was very expensive. And in the end, shareholders transfer all those billions in profits and more over the past six years to management, including Michael Dell, who has made a practice of selling his shares in ten million share blocks on a regular basis.

There just isn't that risk protection in DELL right now because management has been taking far too much from shareholders for many years.
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