Why DELL?
- As a unique service, online only – lowest costs of the industry;
- Excellent earnings history ( historical EPS more than 20% on average);
- Conservative debt ( Current Assets > Total Liabilities );
- High R.O.E history ( 41% five year average);
- History of stock buybacks and no dividends.
In the current analysis all data will be provided using an expected 5 year growth EPS of 19%. To note that this percentage is smaller than the one that happened in the last 5 years. The return rates are calculated using the stock price of $32.93 (
1st SCENARIO – P/E= 30 ( Optimistic)
Return Rate = 20.73%.
An investment of $10,000 will be worth about $25,873 in 2010. A 15% return rate will still be possible until the $42 barrier ( Net Present Value).
2nd SCENARIO – P/E =21
Return Rate = 12.42%.
An investment of $10,000 will be worth about $18,111 in 2010. However, if you would like 15% return rate, you would have to buy the stock at $29.4 per share ( Net Present Value).
3rd SCENARIO – P/E = 17
Return Rate = 7.77%.
An investment of $10,000 will be worth about $14,622 in 2010. However, if you would like 15% return rate, you would have to buy the stock at $23.8 per share ( Net Present Value).
4th SCENARIO – P/E = 11.75 ( Pessimistic*)
Return Rate = 0.1%.
An investment of $10,000 will be worth about $10,134 in 2010. However, if you would like 15% return rate, you would have to buy the stock at $16.45 per share ( Net Present Value).
* Lowest projection for the year 2010 according to the Nasdaq Website. The highest P/E of the last 5 years was 61.62, the lowest was 21.29.
FINAL NOTE:
The current stock price seems to be quite reasonable, as it will allow, a possible and expected, 12% five year return rate. It is not our purpose to say that you should buy immediately, however it is our purpose to say that your purchasing price always as a determinant influence in the expected rate of return. Sometimes to wait, is, in fact, the best option and a 15% return rate doesn’t seem that far!
Thank you for you time.
