Thanks for the kind remarks about my "best Dell bull post." But here is one even better. The author is my Dell guru, Chuzzlewit. Here it is FYI:
As the international financial crises have unfolded, Dell, owing to a vastly
superior business model has been able to profit at the expense of its rivals. In fact, the evidence is becoming clearer each day that the competition is
seeking ways to avoid competing with Dell. Dell has accomplished this by
taking advantage of the rapid deterioration in prices of subcomponents -- an
advantage that its rivals cannot utilize because of systemic inventory control
problems.
Valuation of the stock is at once the thorniest and easiest of questions to
address. Thorny because nobody knows how to properly value a growth
company. I have challenged value investors repeated to come up with a
decent multiperiod valuation model, and they simply can't do it. But the
valuation issue is also easy to address in qualitative terms. Valuation in
theory depends on three parameters: the risk free rate of return, the expected future cash flows, and the riskiness of those anticipated cash flows. The reason that Dell's valuation is a function of forward p/e is quite simple. Each of those parameters has improved with respect to Dell. Interest rates are lower, and the risk to anticipated cash flows seems to be quite a bit lower, and Dell's strong showing in the face of recently decelerating demand augurs well for an eventual resumption the rate of increase in demand.
Any comments, particularly as to how to determine the valuation of this stock?
jhg
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