Earnings forecast. Comparing growth rate last year with this year.
There is just too much good news about DELL, LU, CSCO and
QWST for them to stay down very long.
The stock market tends to follow a pattern, regardless of company fundamentals or news. Of course, bad news will cause a stock to drop, but good news is already priced into Dell. It has run up significantly in July, just like last year, and just like last year, it will be flat for all of August. The price will spike upward at the beginning of Aug and right before earnings, but then it will decline after both peaks to end Aug at its present level, or a little above.
Also, consider the fact that Dell's growth is slowing considerably from last year:
Here's May of 1997: dell.com
Earnings rise more than 157% compared to previous year, revenues: 58%
Now May of 1998:
dell.com
Earnings rise only 63% compared to last year, revenues: 52%
Earnings growth has slowed by 60%, yet Dell's p/e is higher this year than it was last year!
While this is great growth, it is slowing dramatically and will continue to do so as the company grows larger. Eventually, the p/e is going to contract, and the stock price will rise less over time than company growth itself.
Dell's p/e is higher this year than it was last year, so right now it is only momentum that is driving Dell upward, but eventually, this will stop. When? Who knows. How long can the stock price be quadrupling or tripling every year? Common sense will tell that nothing can continue to grow at that rate.
Forecast for this quarter: Last Aug, Dell increased net income by 8% over the previous quarter. If it does the same this year, then earnings per share will be .48. I think this is the most Dell will get. Pricing pressure is greater this year than it was last year, so Dell will probably do a little less. Also, Microsoft reported last week that PC sales are flattening, and it is well known that computer revenue growth is less than last year's, a further indication that Dell probably won't top .48 per share.
Even if it does .48 a share, that would give it trailing earnings of $1.63. which, at a stock price of $100 a share, would give it a p/e of 61.35! Granted, Dell has frequently had p/e's of greater than 70 this year, but how long can that be sustained in the light of declining earnings and revenue growth? |
