Dennis, I am long in the market. I tend to stay close to 100% invested, and I have done that throughout my adult life. I am also an investor (as opposed to a trader), which means that I put my money into companies whose prospects I consider bright over the long term.
Given that kind of mindset, I expect Dell will be worth considerably more than it does now. How much is hard to tell, but I expect that Dell will continue to grow faster than its peers over the next five years, and I also expect the computer industry to grow rapidly over the next five years.
The following is a conservative exercise in forecasting Dell's price. I caution you that this approach is highly conjectural. So lets assume that we are looking at around $2.10 in earnings for this fiscal year, and that earnings will grow at 35% per annum for the next five years, after which earnings will grow at 15%. That means that in six years earnings will be roughly $9.42. Now the question is what P/E will 15% command. The S&P has forecasted earnings growth of around 7% and commands a P/E of around 25. So let's assume a p/e of 30 for Dell, which would price the stock at around $283. Based on the current price of $105 that yields an average appreciation of around 17.8% which is considerably better than the historic 10% average yield on equities, and is consistent with a growth company.
Dennis, bear in mind that this is highly conjectural. There are any number of things that could derail these estimates. But I also believe that the assumptions are quite conservative.
TTFN,
CTC |
