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

To: TREND1 who wrote (126807)	5/19/1999 12:22:00 PM
From: Jill	Read Replies (2) \| Respond to of 176387

Motley Fool lunchtime Special: What's Priced Into A Stock? This morning we had an interesting interplay of earnings releases from two technology bellwethers. Dell Computer (Nasdaq:DELL - news) , the darling of the personal computer industry, posted earnings per share (EPS) of $0.16, in line with expectations and up 45% from the prior year. In response, the stock disconnected $4 5/16 to $39 3/4. Applied Materials (Nasdaq:AMAT - news) , the leading semiconductor equipment maker, posted fiscal Q2 earnings of $0.36 per share. Despite being down a penny from last year's results, this number was well ahead of the $0.27 consensus earnings expectations. In addition, the company announced that it anticipates Q3 EPS to be in the $0.50-$0.54 range, stomping the current $0.35 estimate. The stock fabricated a $2 1/2 gain to $65 5/8. Obviously, today's reaction in Applied Materials' stock indicated that investors look prospectively when valuing the stock. Who cares what happened in the past when the value of a stock is based on future performance? Much more important than beating expectations for the quarter, Applied Materials demonstrated to investors that it has emerged from the recent slump in the industry. While this quarter's results were basically flat (ending deep double-digit declines), the company is projecting strong growth next year, which will more than recuperate last year's stiff earnings decline. Many investors were still worried that the company would not quickly emerge from the industry's troubles, but today's news should alleviate those fears. What's up with this Dell situation, though? The company met published consensus earnings expectations and experienced 45% EPS growth. The company's 41% sales increase was caused because it grew about 2 1/2 times as quickly as its industry. Unfortunately, that wasn't good enough. Over the past few years, the company has significantly beat published expectations and many investors were expecting that to happen again. When the company "only" met expectations last quarter, many thought it to be an aberration. This quarter's results raise the concern that a trend may be starting. Although still rapid, Dell's growth may finally be slowing down below 50%. Many people have been assuming that wasn't about to happen. One of the oldest adages of Wall Street is that investors consistently overreact to news, both on the upside and downside. This statement's validity is never more evident than when a well-established trend comes into question. When a stock is doing well, an investor's tendency is to expect that trend to continue indefinitely. On the other hand, a poorly performing stock is often projected to continue floundering forever. Only when clear evidence of a shift occurs does it become apparent how optimistic or pessimistic the market has been. Successful investors will be the ones who look through short-term financial performance and determine whether a stock is underpriced or overvalued relative to underlying long-term business fundamentals.