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Technology Stocks : Dell Technologies Inc.
DELL 122.97+3.5%10:32 AM EST
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To: Dell-icious who wrote (42441)5/16/1998 12:11:00 AM
From: Chuzzlewit  Read Replies (1) of 176387
 
Dell-icious, I always get a kick out of opinions like this. How does a company sustain its valuation? Answer: it doesn't. Valuations are provided by the marketplace, not by the company. The company generates cash flows, and based on the perception of investors of future cash flows a valuation is arrived at. So what do investors see? The see a computer market that is expected to increase at a rate of around 15%. But they also see a company that is growing at three to four times the rate of market growth. In other words, the perception is that Dell will grow unit sales at between 45% and 60% per annum. So let's SWAG the growth and say that Dell unit sales will increase at around 55%. "Well", the critics argue, the component prices have been dropping, "and with it the ASPs." So lets factor that it. Lets assume that ASPs fall at 10% per annum. What do you get? Revenue growth of 39.5%.

Now, if you consider that the YPEG for the S&P500 is around 1.3 (if my memory is correct), that would yield a forward p/e of around 51 for DELL. So I would ask Mr Murphy this, "what needs to happen in the marketplace for the current valuations to be maintained?"

But this is just one pussycat's view.

TTFN,
CTC
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