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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: larry who wrote (11442)	7/13/1998 8:47:00 PM
From: Roger A. Babb	Read Replies (2) \| Respond to of 18691

Larry, let's do a little math exercise on DELL. I think we can both agree that for Dell to be worth $100 billion as you claim, someday it must be reasonably expected to have revenues and earnings to justify that number. Thus we can say that someday it must have a PE of 20 or less based on the 100 billion market cap. Today DELL has a margin of about 8%, let's assume they can improve that to 10%. That says it must have a P/S of 2 on the 100 billion base, or a revenue of $50 billion per year. An assumed sales price of $2000 per computer is reasonable, that say they must sell 25 million computers per year. Let's assume they can command a 20% market share (very unlikely). Now we can see that total computer sales would have to be 125 million units per year and Dell to get 20% of those sales at 10% profit and a PE of 20 to justify a 100 billion market cap. All very unlikely events in my opinion. I may have to hold my DELL short for a while as I have AMZN, but long term it is a sure thing. The PC component makers have almost all reported reduced growth or even declining sales. It follows that PC sales must also be reducing growth and that can't be good for DELL. But I do admit that very few investors agree with my logic on this.

To: larry who wrote (11442)	7/14/1998 5:57:00 AM
From: craig crawford	Read Replies (1) \| Respond to of 18691

>> BTW, I think that in five years, we will all find that it's a smart move to invest in YHOO! right now. Damn, the valuation is too high...but that's a darn great company, with great management. This boy can easily be a 50 billion company at around 2005 << I am a YHOO believer myself and think they have a great future ahead of them, but you just brought to light an interesting point. You said they could easily be a $50 billion company around 2005. That is only a five-fold increase from the current market cap of $10 billion. A 400% return in 7 years isn't exactly bad, but how does that compare to the 400% return YHOO has generated for shareholders just in the last 8 months? It's going to take several years to match the returns generated just in the last year. That's why my enthusiasm for YHOO the stock has waned somewhat. My enthusiasm for the company grows almost everyday.