Stock bull, I'm fully aware of "exit strategies" and I believe there is a HUGE diffrence between investing and gambling, but I'm not going to go thru it. I do agree w/ you though that "life is a gamble!"
Here's a little something from some dumb reporter over at the NY Times. I still think DELL is going higher, but here's more of what I've been talking about. Others are now starting to notice. Shouldn't be too long now before the party just..... ENDS.
July 19, 1998
MARKET WATCH
At $117, Dell's Price Does Not Compute
By GRETCHEN MORGENSON
t's Dell-lightful, it's Dell-lectable, it's Dell-lovely.
It's Dell Computer, PC mail-order company and money machine for stock market investors. Shares of the company, which had sales of $12.3 billion, are up 180 percent this year, closing on Friday at $117.5625. In 1996, its shares traded at $4.
Because Dell accounts for 3.3 percent of the Nasdaq composite, the stock was one of the big engines powering the index above 2,000 last week. It trades at 72 times trailing earnings, 75 times estimated cash flow and more than 6 times sales. At $75 billion, Dell's market capitalization is just under half the $155 billion in personal computers sold worldwide last year.
This is not just any stock. It is a phenom.
Investors love Dell because it rewrote the rule book for an entire industry. Its business model -- manufacturing only those PC's for which it has orders -- eliminated one of the biggest costs a computer maker bears: inventory buildup. For that reason alone, Dell is the envy of its peers.
Dell's model has also kept the company's earnings and margins up even as other PC makers have suffered. On Wednesday, Compaq announced earnings of 2 cents a share, not counting extraordinary charges -- far below the 30 cents each of its shares earned in the comparable quarter last year. Hewlett-Packard has warned that its second quarter, which ends later this month, has been difficult. IBM announces its second-quarter results Monday.
But being the envy of an industry in a severe growth slump means that Dell's direct-selling model is under siege. In June, Compaq and IBM, the world's largest computer makers, said they would immediately begin selling directly to large corporate customers.
So the $75 billion question is: Can Dell maintain its 11 percent profit margins and 51 percent earnings growth of the last five years, given such competition?
It seems unlikely. Dell has been able to show growth as other PC makers stalled largely because its prices were 10 percent to 15 percent below the competition's.
Consider Thursday's news from, Vanstar, one of the nation's largest designers of computer networks for big corporations, that pricing pressures would decimate its first-quarter earnings. Why? The company's average sale prices for May and June were 21 percent below last year's levels. And this is the same customer base as Dell's.
Indeed, Dell's sales growth has begun slowing; it was down 22 percent over the last four quarters. The company's stock, meanwhile, more than tripled. It is a measure of where we are in the bull market that investors who were willing to pay around $30 for Dell when its sales growth was 67 percent are now willing to pay $116 for growth of 52 percent.
Because it spends so much buying back shares -- to counteract huge options grants -- Dell also has surprisingly little cash flow. Last September, Dell authorized the repurchase of 125 million shares.
Dell is a wonder company. But investors in the stock will do well to recall exactly what else Dell is: an assembler of commodity products. Dell develops none of the innards that make computers go. It has no proprietary technology.
The shares may keep soaring. Today, market moves last longer than anyone predicts. But recall the old quip: Nobody ever went broke taking profits. |
