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

To: Michael Bakunin who wrote (95587)	2/6/1999 7:07:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Michael, there seem to be many people who evaluate stocks in a vacuum, and that is a grave mistake. Using heuristics that were applicable ten years ago today, or using smockstack industry capital constraints on service industries are two examples. Your comment provides yet a third example. Here's why: price to sales ratios are easy to arrive at, but they are meaningless unless placed in some contect. The paramount determinants of stock valuation are long term interest rates, free cash flows, the perceived growth of those cash flows and the riskiness of achieving those cash flows. Not a single one of those parameters requires heroic assumptions about revenues. Dell is as close to the perfect company as I have ever seen. There is no other company with which I am familiar that has ROIC of around 200%. In practical terms, this means that Dell's growth is not constrained by its cash flow. It has an operating efficiency that other companies could only dream of having. So when you talk of price to sales ratios it would only make sense in the context of similar companies with similar operating efficiencies. But Dell is an order of magnitude superior to its competitors with regard to just about any efficiency metric you care to name. Having said that, I still believe that Dell's stock is pretty fully valued at these levels. The rate of appreciation of the stock is well in excess of the growth of the company, and that makes little sense in such a widely followed company. At some point you would think that the rate of increase in the stock price ought to be equal to the rate of increase in free cash flows. But exuberance, whether rational (like mine is) or irrational (defined in terms of anyone who is more bullish than me! <VBG>) can run you over in growth stock. Buying puts is a dangerous way to go. TTFN, CTC