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

To: jhg_in_kc who wrote (92181)	1/28/1999 1:17:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 176387

jhg, stirring the pot as usual I see. P/Es are meaningless, and you know that I have always argued that there are much better ways to look at a company. Perhaps I can answer the question by telling you how I generate the financial section of a business plan. After speaking to sales people (who are always exuberant), I speak to engineers and production people to find out what facilities are needed and what the expected lifetimes of those facilities might be. I speak to administrative types to find out what infrastructure costs are needed to support the rest of the business. I then try to tweak the system by devising a variety of strategies and watching their effects on the business. But in the end, there is only one thing worth watching, and that is the expected cash flows generated by the business. The easy way to do this is to assume that the business as now envisioned is mature, and maintains a stable market share. That means that growth cannot exceed growth for the industry as a whole. Under those circumstances, what is the expected cash flow, and what as a new investor would you pay to buy that company? Having decided what the company is worth in the future (under the best of circumstances), and having discovered the capital required to bring this plan to fruition, you can arrive at a valuation. But then, you must decrease this value to account for risk. This risk premium is what drives investors. The calculation I generated for AOL demonstrates that not only is there no risk premium, but there are implicit revenue generators that go far beyond the current business plan. I repeatedly asked people on the AOL thread what they were. I received no response. I feel much less nervous about DELL because I see two areas emerging: mass storage and servers. I know that Dell management is grappling with this issue. I see no such indications from AOL. So I see a huge disconnection between what is possible given AOL's business, and what investors implicitly expect. There is a big difference between being a blind euphoric. I belong to the former category. There is also a difference between being prudent and believing that the economy is about to implode. So I consider myself a prudent optimist. I hope this helps. TTFN, CTC