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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: George Wave who wrote (136684)	7/15/1999 8:35:00 AM
From: George Wave	Respond to of 176388

Would someone in the know please post the time of MD's conference and a link to it. Thanks.

To: George Wave who wrote (136684)	7/15/1999 11:45:00 AM
From: The Philosopher	Respond to of 176388

a company that produces regular 40% EPS growth rates and 30% revenue growth.. Can't happen on a regular basis. Short term, yes. But in order to have earnings grow faster than revenues, one of three things have to happen. First, margins can increase. This can happen for a while, but there is a limit. You can't grow margins over 100%! (In real life terms, I don't know of any company that has sustained margins over 50% for any length of time, and anything over 30% is pretty rare.) Plus, the higher margins grow, the more competition flows in. Second, you can buy back stock. But there's a limit to that, too. If you are successful enough to generate the cash flow to buy back chunks of stock, and if you actually do buy back stock, thus increasing eps, the stock price is going to go up, and you are caught in a spiral where the more you buy back the more expensive it gets. Third, you can play accounting games. But these, too, have limits. So there is a limit to all these games. In the short term, earnings growth and revenue growth rates can diverge. In the long run, earnings cannot consistently grow faster than revenues.

To: George Wave who wrote (136684)	7/15/1999 2:21:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176388

George, thanks for your comments. I do think that your 40% assumption is too optimistic. Let me expand my comments on the limits to growth and the constraints of the size of the existing market that Dell does not control to demonstrate why I think you are overly optimistic. Let me make two assumptions (you may adjust these as you see fit): 1. Dell's current market share is about 12% of the total market; and 2. The total market is growing at 16% per annum (approximately in line with Intel's growth). Now, that let's make two additional assumptions to test your 40% growth hypothesis: 3. Dell will grow at 2.5 times the rate of overall market growth until it reaches a stable market share (i.e. 40%); and 4. Dell's stable market share is 30%. The question is how long can Dell maintain its current growth rate of 40%. We now have the following expressions: if n is the number of years Dell will have 40% per annum growth, then (1.16)^n will be the total size of the market after n years; Dell's total market will be .3(1.16)^n after n years. Dell's market will be .12(1.4)^n Therefore, ln(.3) + n ln(1.16) = ln(.12) + n ln(1.4) so, n (ln(1.16) - ln(1.4)) = ln (.12) - ln (.3) Solving for n you get 4.87 years. That means that at 40% per annum growth for Dell it could be sustained for a maximum of only about 5 years. Clearly, a 40% growth rate is quite optimistic for the next five years. TTFN, CTC