Paul,
I'm really not trying to assign a value to Dell, I was just trying to point out that it's valuation seems excessive based on it's sales and total shareholder equity numbers. However, I do believe this will be another outstanding year for Dell (from a revenue and earnings perspective)...perhaps their sales will top 16 billion and earnings will reach $4/share. Guess we'll know 1 year from now.
But, where do they go from their? To me it seems unlikely that Dell will be able to sustain their current growth for much longer. When you get back down to the basics computers are pretty much commodity products. Dell has great computers, but they really don't offer anything that other box makers don't offer. Dells sales and income are less than 1/2 that of Compaq, but their market cap is higher. If Dell were able to keep up 40% top-line and bottom-line growth for the next two years, their numbers would equal what Compaq's are today.
With tremendous competition from other box makers, declining prices of boxes (I assume Dell's average selling price has been declining, although maybe not as fast as some other companies), they will have to majorly increase unit shipments to maintain such growth. For example, assuming that the current selling price is $2000, and the average selling price declines by 20% this year, then they would have to increase unit shipments by 75% in order to maintain a 40% top-line growth (I think I did the math right). Even if selling prices were to drop by only 10%, unit volume would need to increase by 55%. The sub-1000 market will have some effect on them sooner or later.
Anyway, in hindsight I wish I would have loaded up on Dell during the Asia crisis. However, I would have sold by now. Good luck with your investment. |
