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Technology Stocks : Dell Technologies Inc.

DELL 114.44

-3.4%

Jan 30 9:30 AM EST

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To: Andrew Fenic who wrote (26183)	12/23/1997 12:50:00 PM
From: Chuzzlewit	Read Replies (1) of 176388

Andrew, please check your facts concerning market caps. Dell has about 330 MM shares o/s. But regardless, valuation by comparing sales and earnings to market caps leads to specious results. You raise a larger issue that needs to be addressed -- how to value growth. Let's assume that we have two companies equal in every way including sales, earnings, margin, capital structure and shares outstanding. But company A is believed to have much greater growth prospects than company B. It is certain that company A's shares will priced higher than company B's. The problem is how much higher. So far as I know, there are no really good methods of valuation for growth. PEG and YPEG are much too naive to be reliable. Any decent valuation model would have to be based on the present value of expected free cash flows, but the major problems I see are: 1. How much of a risk premium to assign to the discount factor; and 2. How is it possible to forecast earnings growth beyond a very short time frame? Regards, Paul

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