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Dell
Computer (DELL, NASDAQ)
If there is a silver lining in this stock market debacle, particularly in the technology sector, then it has to be the realization that like most others, this sector is also cyclical. And like in most other cyclical sectors, the precise timing of when a downturn would occur is at best a guess work. Only a few of us were smart enough to sell our lakeshore condo before the real estate meltdown in the 90's and only a few of us were smart enough to buy Dell
Computer at about a $1 five years ago. At the peak of the market back in 1999, a popular story used to be that if you invested $10,000 with Michel Dell in 1990 (at the last trough in this cyclical stock), you would have a $1,000,000 in your account. That's nice but can you do it again, is the question.
Before answering this million-dollar question, let me review what this PC Company has evolved into in the last ten years. Today, Dell Computer Corporation is the world's largest direct computer systems company. The Company offers its customers a full range of computer systems, including desktop computer systems, notebook computers, workstations, network servers and storage products, as well as an extended selection of peripheral hardware, computing software and related services. Additionally, the Company offers an array of services to support its customers' online initiatives. The Company's direct model offers in-person relationships with corporate and institutional customers, as well as telephone and Internet purchasing, built-to-order computer systems, telephone and online technical support and onsite product service. Dell sells its products and services to large corporate, government, healthcare and education customers, small-to-medium businesses and individuals.
DELL designs, develops, manufactures, markets and services and supports a range of computer systems, including desktop, notebooks, and enterprise systems (includes servers and workstations). DELL also markets software, peripherals, service and support programs. For the 39 weeks ended 10/27/00, revenues rose 26% to $23.21 billion. Net income rose 47% to $1.80 billion. Results reflect higher sales of servers and notebooks, along with increased financing and other income.
Next, I want to draw your attention to reason why Dell rose by more than 100 fold in less than a decade. Surely, the PC market didn't rise by anywhere near that. No, it did so by taking market share from all others including IBM, Compaq, AST (now defunct) and the hundreds of clone makers all over the world. It made it easy, reliable and affordable. Currently, Dell has focused its eyes on the other PC type products including servers that run and store Internet data. It has now got the likes of Sun Microsystems and EMC corporation in its line of sight.
Can it be done? If you look under the hood of a workstation, server or data storage devices, what you will find is a considerably more powerful PC. Same microprocessors, same kind of cards and similar peripheral devices make these lot more expensive devices. Dell knows all of that and if he doesn't Michael has shown that you don't need a Harvard MBA to become one of the richest techy in the world and learn how to put a Lego of electronic pieces into gee-whiz devices. I am sure Dell will make life very difficult for these bloated companies. But I have no idea whether by 2010; your $10,000 now will again become a cool million.
Charts:
Rhetoric aside, a company that returns over 30% on equity consistently ought to be trading at near 30 times earnings not the current 20.
There is a 50% move in this stock if the worse in PC sales is close to be over. Assuming analysts are right about a $1.10 earnings per share in 2001, the stock should reach $30 fairly soon.
Following input was used to construct the Fundamental Charts;
Earnings Per Share, $0.90 (Jan 01), $1.10 (2002)
Plowback 100%
Return on Equity 30%
Beta 2.33
Debt/Equity 8%
Last Updated May 12,
2000
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