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: arthur pritchard who wrote (127823)	5/22/1999 11:03:00 AM
From: John Hauser	Respond to of 176387

Something from the yhoo thread: comments? During the past year from 99Q2 through 00Q1 the increase in equity per share was 102+%, the highest ever. The reduction in outstanding shares was only about 2%, primarily in consequence of the elevated PE levels of the past year. While generating unprecidented levels of return on capital, both equity and cash balances increased. Despite a decreasing rate of EPS increases on a rolling 4-quarter basis, ROE/share has nevertheless accelerated to the point where it is now over 100%. This has happened in so few (if any) large, rapidly growing businesses that it is entirely outside of the normal range of expectations. If the rate of sales and EPS growth slows you would expect ROE to slow also. This would be a valid assumption most of the time for most businesses. The exception in this case is that in getting from sales increase to equity per share increase, there are four steps to go through: 1) Net Margins 2) Asset Turnover 3) Financial Leverage 4) Share repurchases The key factor above is #2. DELL simply manages to increase sales without proportionally adding assets to the balance sheet. In order to do this it passes cost decreases through to its customers, maintaining a 7.8% net margin. The ability to control cost is just as effective as the ability to raise prices. Both increase gross margin, operating income, and net margins. All competitors could increase costs at will if the market allowed it, but not all can reduce costs to the same extent. The success formula is: Focus on #2 using ROIC targets, hold #1 constant, which makes possible very superior results in terms of #3, Financial Leverage. #4 will contribute to positive results inversely to the PE level. This is not controllable. Dell has become a victim of its own success, because the high PE level reduces the # of shares that can be bought back per dollar of excess cash flow. But the act of buying back shares reduces both assets (cash) and equity. In doing so the company has the ability to manage the growth of equity, via its leverage, resulting in sustainable increases in ROE per share. The fact that these results have been so consistently achieved while competitors have fallen by the wayside suggests to me that growth is sustainable. The overall financial structure consisting of four areas as outlined above seems to be working at about 98+% of its theoretical peak potential. And in due time I won't be surprised to see new record share price levels, hopefully not accompanied by record PE levels. This adjustment process currently underway is in the long run a favorable development. Converging up from a low PE level is more profitable than convergind down from a high one to any given endpoint.