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

To: Chuzzlewit who wrote (80419)	11/15/1998 11:53:00 AM
From: BGR	Read Replies (2) \| Respond to of 176387

CTC, Very well said! I propose that a link to this post be offered in response to anyone raising concerns about DELL's valuation in future. DELL's forward PE is now about twice that of the S&P500. Leaves room for 50% to 100% share price appreciation w/o valuation concerns. Does anyone have the number for DELL's beta? Or is 1.8 the accurate number? TIA! -Apratim.

To: Chuzzlewit who wrote (80419)	11/15/1998 8:57:00 PM
From: Moominoid	Read Replies (2) \| Respond to of 176387

S&P is properly priced I didn't really want to get into an argument about whether DELL is over-valued. This started with a comment on TigerPaw's comment that DELL should see forward stockprice appreciation of 200% on the basis of 50% earnings growth. I replied that I thought going forward 50% was likely to be the upper limit of DELL's price appreciation unless it is somehow very undervalued now. I think that the SP500 is overpriced because 8% perpetual growth seems too high. Of course much rests on what the correct value for the equity premium is. Maybe it is now lower than it once was. You can't use a perpetual growth model for a growth stock like DELL and therefore you have to be much more explicit about the future time path of earnings. The analyst's consensus for next year is around 37% growth. Let's assume that 50% is correct as Dell has suggested and this declines to 40% in five years and then declines much faster to nearer market averages (your 8%) thereafter in the following 5 years. Then with a beta of 1.8 and the CAPM the correct price for DELL on discounted earnings is $62. A beta of 1.5 gives $83. With a beta of 1.5 the current price is correct even with a long-run growth rate in 2008 and thereafter of 6%. If the correct cash flow measure exceeds stated earnings than all these numbers get even easier to achieve with lower growth figures or higher betas. So the bottom line is that DELL may well have the correct price now if Dell's projections are correct. I'd think they are optimistic BWDIK. But 200% stockprice appreciation is ruled out even then... David