To: VICTORIA GATE, MD who wrote (57108 ) 8/8/1998 4:30:00 PM From: William C. Spaulding Read Replies (3) | Respond to
Dell started the year closing at 42 7/8. It's last close was at 107 1/4. Dell has already increased in value two and a half times. But wait! Earnings aren't doubling every year. Revenues aren't doubling. So how much longer do you think Dell can keep skyrocketing. Can Dell (Market cap: 68 billion)really be worth a lot more than Compaq (Market cap: 52 1/2 billion)? If I had $70 billion and I was going to buy a computer company, I'd buy Compaq. I would not only acquire a market leader, and would have a lot more assets to show for my money, but I would have 15.5 billion cash left over. Yes, it is true, Dell is growing faster, but a good part of the reason for that is that it's a smaller company. The larger any company becomes, the slower the growth rate. I believe 1st qtr. earnings this year increased 63% from last year's 1st quarter. If the stock price kept pace with actual growth, then the stock price from the beginning of this year would be $70, not $107. And that growth rate will diminish even more next year, probably. Note, also, that even though Dell's growth has diminished by 60% from last year, it's p/e is higher this year than it was last year! How long can this continue? It might continued, if enough money went into the market, but things don't look that way now. There may be a small run-up right before earnings, but I don't think it will be higher than 115, and it will promptly fall even before the actual announcement.
