Hi China Trader:
(Kinda funny to call you China Trader.... what's your real name?)
>>But I wish this thread is not named Bear Thread with the connotation that only bears are welcomed, which in fact is not the case>>
I'm sure Dave welcomes all on this thread, but probably had named it Bear Thread to pre-announce that we do discuss the possibly of a down turn in the stock price on this thread.
>> I noticed that Dell's price has refused to go down beyond the range of 127-143 before split, 63-71
after, and I wonder whether that is an indication of strong buying support at the 63 level, and
what significance does 63 have for Dell >>.
From my point of view, I see no indication as yet of a resistance (support) level to the present downtrend on the chart. The last support level is $50 (after split). This does not mean that there may not be some buying next week, in which case, a new support level may emerge. My guess is that it is likely that the price erosion would continue for a bit more. After all, how many professional portfolio managers would buy into the stock at this time where there is a cloud hanging over the pc demand/pricing environment?
>> Although I am not much of a chartist, but intuition tells me Dell is on a downward trend short-term. And if the 63 support level cannot hold, are we heading to 50, 40, which were the levels that Dell was at in the last 6 months>>
I use fundamental analysis as well as visit the chart before making an investing decision. A chart just adds more clarity and objectivity for me. A chart is a culmination of all the forces (known or unkown) affecting the stock. And when a clear trend emerges, it tends to continue for a while. At present, the initial indicators are all pointing toward a formation of a downtrend. However, there is no confirmation as yet. Whether Dell breaks below $50 depends on developments within the next few months. If more observations are made on weaknesses in the global pc demand, or if the price war becomes overly competitive, or if Dell comes out with a pre-warning, or if Dell's earnings comes short of the 42 cents/share analysts consensus estimate for the next quarter, then we may well see a significant price re-adjustment to a lower price/earnings ratio.
Talking about pe, I might as well share some of my analysis. I think investors may have over-read the growth in earnings per share. The profitability trend is more clearly shown when comparing net income instead of eps:
net income $mill 1Q 2Q 3Q 4Q
fiscal 98: 198 214 248 285
fiscal 97: 82 103 145 188
net income % growth
fiscal98: 142% 108% 71% 52%
See what I mean? Growth in Net income growth has slided down. However, because of the significant amount of shares buy-back, it is not that obvious when comparing eps. When one compares eps fiscal98 to eps fiscal97, the growth is 94% (fully diluted basis). But wait a minute... the real annual growth in the fourth quarter was only 52%! Please don't take my word for it. I could have made a mathematical error. Download the quarterly reports from Dell's web-site and check it out for yourself.
Earnings per share calculations for Dell is very complicated because of the splits and the buy-backs. One has to know when the shares were bought back, and how many, to calculate the "weighted average shares". This number is used as the denominator in the quarterly eps calculations. If you major in maths, China Trader, you may want to take a crack at this :-).
Some questions for you and others reading this thread: Why does Dell buy back significant amounts of shares every year? With 1.6 billion in cash, why it is taking a loan? If it buys over another company, can it still maintain the above 50% year earnings growth to support the high pe? What usually happens to a high pe stock price should earnings falter? Have you weighed objectively the risk/reward equation at today's price? I mean, do you seriously think the share price can support a pe of 50? (Clues: disk drive manufacturers have suffered, Intel has announced, Compaq has announced, Asian contagian, First Call eps consensus estimates 41% growth fiscal 99, 27% fiscal 00 - hey, the new millinium!
OTHO, Dell could overcome all these concerns very easily. In which case, sigh... a capital loss for me!
D. |
