jhg, rather than follow this fellow's convoluted and often incorrect train of thought, let's focus on one conclusion that he drew upon which he bases the rest of his valuation argument. To wit:
This gives Dell an EPS in 5 years of $2.81.
I expect Dell to exceed this number in two years.
Implicit in this fellow's assumptions is that revenues will grow at around 44%, which is reasonable, but he also assumes an increase in the number of shares o/s which is not reasonable and a contraction of margins.
If memory serves me correctly, Dell earned $.50 this last quarter. So using this number as a point of reference, if earnings grow at 44% per annum, we can expect that earnings over the next four quarters will total about $2.53, and will total $3.65 in the following four quarters, and $5.26 in the next and $7.59 in the the next and finally $10.95 after five years. Note: these are not FY or calendar years. They simply represent years from now commencing with the period ending October 31.
So now, assuming his trailing P/E of 30 (which under his assumptions is a forward p/e of 26), that represents a stock selling for $328.56. With the stock currently at about 66 that implies a 37.9% per annum rate of return. These numbers assume no change in the number of shares o/s, and no change in margins.
As the saying goes, the devil is in the details. His devils are the assumptions of contracting margins and increasing dilution. Recent history demonstrates the opposite. The fact is that Dell is increasing its margins by reducing inventories still further, and by entering into higher margined businesses.
Hope this helps.
TTFN,
CTC |
