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Technology Stocks : Dell Technologies Inc.

DELL 132.08

-0.8%

Dec 1 3:59 PM EST

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To: Geoff Nunn who wrote (47403)	6/12/1998 7:20:00 PM
From: Chuzzlewit	Read Replies (2) of 176387

Geoff, think about it in these terms: what is the best use of the cash? Would you rather invest the cash in a stock growing at > 50% per annum or a bank account at 5%. Remember, we're talking about cash flow spun off from a company with a very high ROIC. Think of an eps line based on the number of shares o/s. If the company were to issue more shares and invest the cash in a savings account at 5% the price of the stock would fall because of the dilution. At the margin, the return would be 5%. By repurchasing shares you get the opposite effect. Another way of looking at it is increasing leverage with the marginal cost of capital being the opportunity cost. Typically, this gambit works when the management views the stock as undervalued and ROIC is much higher than the opportunity cost. TTFN, CTC

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