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

To: yard_man who wrote (105770)	2/28/1999 6:11:00 PM
From: Walcalla	Read Replies (2) \| Respond to of 176387

Dell -- A model of market volatility By Lauren Rudd for the Savannah Morning News As recently as a month ago, Dell Computer could do no wrong. Now suddenly it is as if the company can do no right. But if it had not been Dell, it would be some other company that temporarily falls from Wall Street's good graces. Regardless of which stocks you own, or how many you own, getting caught up in an occasional squall on the investment seas is to be expected. The question is, are you prone to becoming seasick. So did Dell hit the shoals and is now taking on water? No, I do not think so. Earnings per share hit 31 cents for the quarter that ended Jan. 29, a 55 percent increase over the company's earnings per share number for the same quarter a year earlier. For the year, earnings per share grew by 64 percent. Revenue climbed 38 percent for the quarter and 48 percent for the entire fiscal year. To quote CEO Michael Dell, "Dell finished another record year with strong momentum, ranking No. 1 among key competitors in return on invested capital, revenue growth and unit growth." However, Wall Street's reaction was anything but positive. Dell's stock closed at $81.63 on Feb. 17, the day after the announcement, down more than $20 a share from its closing number Feb. 11. The reason had to do more with hopes and expectations rather than cold hard numbers. Dell's earnings were exactly what analysts had expected. Unfortunately, just meeting expectations is a disappointment onto itself when mentioned in the same breath as Dell. What caused the most consternation was the fact Dell failed to meet the Street's expectation of $5.5 billion in quarterly revenues. Instead, the company reported quarterly revenues of a mere $5.17 billion. Note these are quarterly numbers and not annual ones. Furthermore, Dell stated that it was cognizant of the fact that it had lost business to commercial clients because it would not lower its prices and thereby damage its profit margins. Instead, Dell's average unit selling price during the quarter fell by just $5 to $2,350. Gross margins remained strong at 22.4 percent, just below the 22.5 percent level Dell achieved during the previous quarter. The tradeoff was lower unit sales, which only grew 8 percent over the previous quarter, and was well below the 22 percent industry growth number. However, the industry's unit growth took place at the sub-$1,000 end of the PC spectrum, a segment in which Dell currently does not compete. Will Dell change its strategy? Dell is too well run of a company not to. At the same time, it is unlikely Dell will deviate much from its current game plan. That plan has brought Dell phenomenal success which in turn has led to Dell's stock taking honors for being the best performing stock in the S&P 500 index over the past several years. Look for Dell to spell out some details of its future strategy in April. A sudden reduction in the price of a stock, as in the case of Dell, is not a remote event and it can happen to any stock. This is why a long-term investment horizon is so important. Furthermore, regardless of how you slice and dice the data you always end up with the same two results: The first is that in the long run stocks provide an average annual compounded total return of nearly 11 percent. The second is that in the short run the stocks are volatile. So is Dell still a good investment? I cannot draw any other conclusion. Dell continues to grow faster than any other firm in its industry, and the Dell model of selling built-to-order machines directly to customers certainly hasn't lost its power. The company now carries just six days of inventory, a number that is down from the seven days it was carrying during the previous quarter. I am looking for earnings per share of $1.60 for 1999 and a stock price of around 120 if the company continues to trade at its current premium of 75 times earnings and I think it will. Wall Street is not Main Street. Market volatility remains the nature of the beast. Utilize a long-term outlook in conjunction with a buy-and-hold philosophy that is applied faithfully to the purchase of top-grade stocks and you will find that it is difficult to stray from a reasonable return. Web posted Sunday, February 28, 1999