I am really surprised at how far and how fast Dell has gone up. I guess there is so much money out there looking for a place to go that they are willing to bid prices up to lofty levels. However, I still would NEVER buy in at these levels. It's just too risky! The higher the price goes, the less upside potential there is and the more downside. With the other indexes lagging, I don't think that this will continue much longer. I don't see how, but I don't know how much money is out there, and I don't know what everyone is thinking, so it might go higher. I just would never subscribe to the greater fool theory myself, buying at high prices in the hope that a greater fool will bid them even higher. It's not p/e ratios that determine prices, but supply and demand. The higher the price goes, the greater the potential supply and the lower the potential demand. Anyone buying in at these levels would have to seriously consider how much more can it really go up.
You can't predict ultimate price with p/e ratios, because p/e ratios vary as much as the price does. The p/e ratio for DELL varied from 31 to 7! So really, you guys are just betting with your money, hoping that the price will go even higher. Although GATE beat its old high today by 1 1/2 (so far at this writing. In any case GATE has a lower p/e than Dell at the moment, so some appreciation should be expected in this market.), CPQ and MUEI still linger below their highs (although MUEI may go up since earnings are coming out next Friday). IBM is reaching new highs, but if IBM had the same p/e as Dell, its price would be over $300 a share, not the $165 it is now! So considering this along with the other lagging indexes, I don't see it climbing much further, and it may reverse itself shortly, as investors lock in profits. Although people may wait until the new year to sell for tax deferral, that might be a mistake, too, since everybody has that same idea, and prices may open considerably lower at the beginning of the new year.
So, although, I don't know how much higher Dell will go, I do know that there is some point at which it is going to reverse, and for would-be buyers of the stock, they should realize that the higher the price is, the less it can go up further, and the more downside risk there is. Indeed, maybe 109 3/4 was the peak. I don't know that either.
Or consider it this way. Stocks always reach a peak at some point, and that means that somebody bought in at the peak. Since I don't know where that peak is, and neither does anyone else, I don't want to become that potential sucker by buying into it now! |
