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Technology Stocks : Dell Technologies Inc.
DELL 138.940.0%3:59 PM EST
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To: jhg_in_kc who wrote (58563)8/17/1998 11:17:00 AM
From: Chuzzlewit  Read Replies (1) of 176387
 
jhg, stock splits do not add to shareholder value. I don't know where people get the idea that they do! So forget about equating stock splits and float to performance. As a BRK shareholder you more than most should be aware of the pitfalls of the kind of facile thinking that leads people to conclude that splits adds to value. Stocks split as a result of increases in stock prices, which result from increasing profitability.

To show you how silly extrapolation can get, let's see what the numbers you pose imply. A market cap of $1 trillion in a mature S&P 500 company would imply a P/E of around 27. So your number would imply earnings of roughly $37 billion (after taxes). Assuming that we simply apply Dell's current net profit margin, we come up with sales of roughly $487 billion. Assuming that ASP is around $2,400, this implies selling 203 million units per annum, or roughly speaking one computer for every 30 inhabitants of the planet! And that doesn't include what Dell's competitors will be selling.

I suggest that instead of engaging in that kind of wishful thinking you redirect your energies into examining the demand for computers in five years and what projected growth would look like. Then make some assumptions about Dell's market share at that time.

Clearly, there will come a point at which the market becomes saturated. There will come a point at which technological improvements will not be so compelling to maintain the current replacement cycle.

TTFN,
CTC
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