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

To: J. P. who wrote (67785)	9/27/1998 11:21:00 AM
From: BUYandHOLD	Respond to of 176387

J.P Interesting argument from Fleckenstein. Have you thought about how meaningless that argument is if you used it for MSFT, LU, CSCO? None of them would hold up! Not to mention AOL, MSPG or for that matter YHOO, AMZN, CMGI etc, etc...!! Stated differently, there is a fallacy in the logic. Good investing. B&H

To: J. P. who wrote (67785)	9/27/1998 5:33:00 PM
From: jim kelley	Read Replies (3) \| Respond to of 176387

RE: Fleckenstein's analysis "Let's put some numbers in perspective. Dell's market cap is $80 billion, yet we sell only $150 billion worth of PCs in the world annually." Answer: Fleckensteins's argument seems to be based on the underlying assumption that one should not pay more than book value or a P/S=1 for a growth company. This is the type of valuation you might get for a medium size bankrupt company in a fire sale situation. .................Price/sales......Market Cap MUEI........4.01.................1.6 CPQ..........2.25................56.95 GTW.........1.25................8.54 DELL.........5.54................84.1 INTC.........6.03................148.4 GE............2.9...................270.3 Some factual corrections first: Dell also is selling into the enterprise market and ten percent of their business is peripherals, software, etc. Moreover, the market for this year is estimated to be 90 million units. At $ 2,000 per unit this works out to 180 billion dollars per year in the box market. Not the $150 B asserted by Fleckenstein. Now DELL profit margin after taxes is currently 8% not the 5% mentioned by Fleckenstein the Flake. Main Argument: If we assume that DELL had 100% of the market this year as Fleck has done then we get the following: 180 B X .08 = 14.4 B after tax profit. This gives an earning per share of about $11. Note: this does not include the other ten percent of the business in peripherals, software, etc. Nor does it include margin improvements. Nor does it include the effects of a stock buy back program. So the assumptions are extremely conservative. Computing DELL's share price under the assumptions above: DELL's sales would be 180 to 200 B for this year assuming the hypothetical monopoly. The only company similar to this would be Intel which has about 80-85% of the microprocessor market. Intel sales are 6 times its revenue stream. If DELL sold at 6 times its revenue stream it price per share would be $923 dollars per share based on the price to sales ratio of 6. Currently, DELL's price to sales ratio is 5.54. If DELL stock was priced at the same PEG as INTC, then the price of the stock would come in at $300 /share. This is about 5 times its current valuation. One can arrive at the reasonable conclusion that DELL as a monopoly this year would be worth between 300 and 900 per share. Where in this range would depend on the assessment of the present value of future discounted profit cash flows.