Gary:
Unfortunately, I have had little time to respond to your posts, including to me, as of late....am about to walk out the door on holiday...But, next week, I will follow up on some of those posts.
A few pts:
"CPQ trading off 10% from "the correction" as is Cisco."
CPQ is down much more than 10%, it reached above 38 in the past few weeks...that would make its correction north of 20%....
" DELL still off
over 15% and still trading at 64 times trailing earnings. Continues to
look pricey at these levels and it's my belief folks are begining to
notice. "
What has Dell's growth rate been (over the past 4/5/6 yrs.?)....(Owning Cisco you should know that) Wall Street does not value high growth companies based on PAST P/E....You conveniently have mentioned (in your past posts) that Dell's valuation should be based on future (earnings) growth, and now you conveniently use Dell's past PE to support your (current) argument.....Which do you use, past PE or future PE, in your valuation of Dell's stock price?
How is it that Dell is pricey at these levels (and people are just beginning to notice)?...Dell just had a blow-out quarter, accerlerating growth....and is now trading at a past PE of 64.....in the past few months, it has traded at a past PE at close to 80! (after weaker growth quarters....if you can call 50%+ growth weak) So, the company's performance has improved, and the PE is lower...
Dell is being affected here, like practically every company in the stock universe, by univeral worries about general world economic conditions....Dell's stock will recover as soon as it becomes clear (once again) that the world economy is not as bad as everyone thinks OR that Dell's future earnings prospects are not going to take a hit (because of these world problems)...this will happen soon enough.
If you go back and look at Dell's stock (and why it has run up), it is in part due to the fact that stock analysts (in consensus) have been consistently low concerning Dell's future growth rate (EPS estimates)....Dell will comfortably beat this quarter's consensus again....it currently stands at .535...even if it moves to .55, Dell will bring in (at least a .58 this quarter)...That will be enough to move the stock...probably even before the earnings announcement....
Dell has managed this little game superbly...
Consensus estimates have Dell growing at 30% over the next 3-5 years.....Next week, we can debate these estimates, but that is the current analyst expectation....I am comfortable that Dell can exceed this number comfortably for the next 3-5 yrs....Maybe not 60%, but comfortably...
Look at Microsoft....It is no longer growing at 50% a year, and has not for a few years....As it growth slowed, however, its stock still did well because (1) Microsoft guided its growth lower, and did not "surprise" the analysts with this slower growth (2) The market (obviously) pays a premium for fast growing, consistent companies...even if their growth slows....Cisco, Dell, Microsoft....The tech equivilents of Coke, Gilette over the past few years (If needed, I'll explain next week)....but Cisco, Dell, and Microsoft grow much faster, and IMO, justify their price better than Coke and Gilette..
Think about a couple of the factors until we meet again:
(1) There is an enormous consolidation going on in the PC industry....All the little players are struggling to survive....(worldwide).....Dataquest/IDC data backs this up.....The big guys (the top 5/6 firms) only have around 50% world market share...This will only increase...Given that HP is now committed (at least over the next few quarters) to earning money vs. share, that IBM has not shown the ability to grow marketshare at a multiple anywhere near Dell.........It looks like the main beneficiaries of this consolidation will be Dell and Compaq.....How much is it worth (to stock price's of Dell, Compaq) if there are only 5/6 PC manufacturers (of decent size) in the world 5-7 years from now? How would this scenario affect economies of scale, profit pressures, etc...Hmmm....
(2) The 2nd half of the year is much better for all computer makers....this is a historical fact....All are talking of rosy forecasts....And the stock is supposed to (further) tank? Look at other industries, how many others are in their cyclical uptime?
(Stock)Investors dont have a lot of options here....
(3) (I can send you some articles next week), but Europe is predicted to continue huge PC growth in 1998 & 1999 due to (1) undercomputerization (2) Euros implementation (3) Y2K (4) internet growth
(4) Asia's two biggest markets (Japan & China) are expected to grow at a fast clip over the next two years....
Finally, Gary, you must realize that Dell longs have heard already this year (and in years past) that Dell was going to hell in a handbasket because of (1) Asia, last October (2) Lower ASP's (gross margin's INCREASED in last quarter's report) (3) Inventory glut (4) IBM, CPQ, HP putting Dell on their death list (going on for many quarters) (5) Duplication of the JIT-BTO model (announced by CPQ last year....IBM and HP late last year, early this year)......
All of these things were thrown at Dell before you arrived on this thread....and Dell has actually improved its rate of growth!
So, yes, we do give Dell the benefit of the doubt (when Michael Dell speaks), because he has proven his credibility over and over again...
Anyway, we'll catch up next week! Happy holidays all!
John |
