John, I wrote this in response to one of the bears who frequents this thread. He had asked me what would prompt me to sell Dell. This is the reply I sent him:
"... when I see signs of a long-term, systemic decrease in demand for computers. While I look primarily at the business, not the stock-market, I note that Dell has a forward P/E of around 44 with an anticipated long-term (3-5 year) growth rate of 40% so we have a PEG of around 1.1 -- much lower than that of the S&P500.
"In spite of all of the hysterical bear postings, if you dissect Dell's financials they turned in superb numbers. In those numbers I saw evidence of a strengthening of the business model as a result of very close attention to inventory. Remember, this was supposed to be a very tough quarter for the box-makers. Growth in demand was down 2-3% from the previous quarter (according to IDC and the Gartner Group), and pricing pressure was severe (according to CPQ, HWP and IBM).
"The other thing that I see is that companies like CPQ and HWP are caught in a no-man's land. BTO and JIT don't work if channels are used. That translates into ongoing profitability problems. CPQ in particular seems unwilling to jettison resellers, and I'm guessing (no data here) that HWP may decide to exit this business altogether. If this is the case, we could see CPQ entrenched in two areas: retail and high-end servers. But they will have lost a significant portion of the desk-top, portable and mid-end server market to Dell. So, if trends continue, Dell should grow much faster than its rivals."
TTFN,
CTC |
