Paul, one may look at the glass either as half empty or half full. While Dell has been growing rapidly, it certainly isn't the dominant manufacturer of computers. Most interesting of all, Dell is really a niche player, having eschewed the casual and gaming home computer market, and focusing instead on the business and power user markets. These segments are not where the blood-letting has been.
Based on the most recent quarter's results, my analysis tells me that the $7.91 figure will be revised upward to at least $9.00. So, the question is, if we have earnings of $9.00 in 2001, and we use that as a surrogate for dividends, and if the growth rate is 9% and the cost of capital is 10% then the value according to the Gordon perpetual growth model will be about $900 in 2002. Now, that's four years from now and the current price is about $130. This implies an appreciation potential of about 62% per annum. Notice that this is much higher than the current P/E, which accounts for the perception of many people that this stock is "undervalued". Now it would be lovely to quadruple your money every year, but that simply isn't going to happen.
Your critique of my position needs some math behind it. My position is based on MPT and CAPM models.
I must run now -- dinner is ready. I'll pich this up later.
Regards,
Paul |
