Todd,
Bless you and your strategy.
If you believe that DELL has topped and will not see the light of $55 or better, then go ahead and short. That takes guts and I respect that. Please let us know when you close out your short.. I like to keep track of these things...
I am long a few shares of DELL and will continue to remain long. I also hold Dell calls of various expiration dates and at a wide variety of prices.
You should NEVER be lambasted for posting a justified or rational post like yours. We just don't like unsubstantiated stuff.
I happen to disagree with your premise primarily because of the worldwide expansion in China, India, Europe, etc; plus, the push into servers where the margins are significantly better and the competition has been really overcharging for years. Finally, the expansion of product lines represented by gigabuys and others to be announced (not yet a substantial contributor to the bottom line).
Why would Dell put plans on the books to double their server production by building another larger plant if they didn't expect the business to need it?
Finally, their competition can stay in business how long if they don't figure out how to get the inventory down to Dell's levels? How many more years of billion dollar losses in the PC business will the IBM board of directors stand?
The direct model is winning the war and there is plenty of room to grow that model.
I agree that DELL will grow more slowly on a percentage basis. How this will play out in the stock price is still to be determined. I believe that there will be a ratchet effect on the stock over the next year with expectations running high before the earnings and then adjusting down after earnings. However, investors adjust to the new environment rather quickly. Already, the expectations for DELL are NOT to grow by 50% and the stock price reflects that being down from its high at 55 (110 pre split) to the 30s. If DELL surprises the crowd, its back up past the high to new highs. If they meet exepectations, or disappoint on revenue or such, its back down into the 30s. You have a very good chance of closing out your short at a profit. Volatility will increase.
For long term holders like myself, that makes the ride a little rougher. I pay for consistent high percentage earnings growth. I believe that other investors do the same thing. Even GE which grows its earnings at 13% per year or so gets a PE of around 40. Why? because of consistency. GE manages its growth very well.
As Dell continues to turn in high to mid 30% growth, it will continue to earn its high multiple as a premium paid for that consistency.
Craig
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