Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Moominoid who wrote (80554)	11/16/1998 12:24:00 AM
From: BGR	Read Replies (2) \| Respond to of 176387

David, I believe historical averages for risk premium for S&P500 is about 8.4%. To justify a PE of 28 with 8% perpetual return and 5% interest rates one has to use a risk premium of 6.5%. That would be just another way of reflecting the present stock market euphoria. Thing is, the risk premium can and will probably go lower in response to rate cuts - from a general feeling that the Fed's on the job and is the ultimate asset insurer so it is safe to go back to the index fund waters. That one-two punch can easily inflate the S&P500 PE to 30+ and maybe even 40 in no time with two 25 basis point cuts (which by itself is hardly unlikely if credit spreads continue to misbehave - which is ironic as that indicates higher risk premiums than usual in the debt market). Now that's a 25%-50% PE expansion. Assuming 72 as the fair value for DELL (average of the values according to CAPM with PE's 1.5 and 1.8, which is the range) and tagging on a earnings growth of 50% and a PE expansion of 25-50%, one arrives at a stock price appreciation of approximately 90-100% to 130-140% from the present price even with DELL's beta. Which is not that far away from a 200% growth. Irrational, maybe. Unlikely, well perhaps not. Please note that this is not a prediction of any sort as to where DELL's share price is going to be a year from now. -Apratim.

To: Moominoid who wrote (80554)	11/16/1998 12:18:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

David, you said 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. I couldn't agree more. I have estimated that Dell's earnings should expand by an average of about 45% for the next five years based on Michael Dell's comments. In other words, they will be around 6.5 times what they currently are. Now, assuming a perpetual growth of around 12% beginning five years hence (not the 8% of the S&P which includes companies that are not making any money and some that are even losing money)where do you see Dell's "value". I do agree that 200% pa appreciation is impossible unless something radical happens. TTFN, CTC