Dell: Absurdly Cheap

by: Greg Feirman November 14, 2008 | about stocks: DELL    

Greg Feirman

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I just want to give you an example of how absurdly cheap stocks are right now.

Thursday, on the back of Intel’s (INTC) reduced forecast and Goldman Sachs putting it on its Conviction Sell list, Dell (DELL) traded down to $9 a share.

The first thing is that Dell has $3.78 a share in net cash and short term investments on its balance sheet.  That is: Add up its cash and short term investments, subtract its debt, and that’s what the company has.  That’s money in the bank.

Subtract that from the share price and you get Dell’s business for $5.22.  Over the last four quarters, Dell earned $1.34.  That’s a trailing P/E of 3.9!  That is sick! - as the kids say.  Even if earnings get cut in half going forward that’s an 8 multiple.  That is absurdly cheap.  The stock is just being given away at this price.

Disclosure: Top Gun is long shares of Dell.

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This article has 8 comments:

  •  
    Nov 14 09:19 AM
    It's time to sell the company and refund the money to the shareholders.
    Reply | Link to Comment
  •  
    Nov 14 10:20 AM
    There is a reason the stock is absurdly cheap- neither the company nor the stock have performed well over the last 18 months. The hallowed return of Mr. Dell to the company has not brought either tangible results or true hope of a turnaround.
    Reply | Link to Comment
  •  
    Nov 14 10:25 AM
    So many holes...what should I try to plug?

    1) As a passive investor you have zero control on how that cash is employed. DELL has decided to buy back Billions of its own stock in the face of no visibility into its own business and shareholders are down significantly on those investments.

    2) DELL has shown an incredible willingness to pay exorbitant prices for unproven businesses without any forseeable payback. 10x Revenues for Equalogic in the face of a global recession is just plain desperation or incompetenence.

    3) Last twelve months earnings are completely fictitious and are the final remnant of a global credit bubble that financed tons of consumable goods with very short lives. At least the tech bubble produced innovation through its creative destruction.

    4) Where is the growth or innovation going to come from DELL. The whole premise behind a multiple is "expected" growth. I can buy virtually the same computer from DELL, Apple, Lenovo, Hewlett, etc. The innovation is what's inside and that's why Apple has a leg up on everybody right now in the computer space.

    5) The same rudimentary argument could have been made about P/Es on Wang and Digital Equipment...how did those companies fare?

    I rest my case......next!
    Reply | Link to Comment
  •  
    Nov 14 01:11 PM
    Leverage of 9 to 1 might be a concern.
    Reply | Link to Comment
  •  
    Nov 14 01:39 PM
    Sorry, leverage is 10 not 9. They might have to use that 3.78 money in the bank to pay the 5.60 of accounts payable. (both are per share numbers)
    Reply | Link to Comment
  •  
    Nov 17 02:46 PM
    I think Dell could very easily go bankrupt. As cash strapped as they are, they offer NOTHING to the generic PC computer user. It's simple to eliminate Dell, just do the same thing they do--buy cheap, generic parts, plug them together in any ugly box you can find.

    I'd rather buy a company that offers something no other company can match, and one that is in good shape financially. Also, one with more markets than just computers. Especially in these times.
    Reply | Link to Comment
  •  
    Nov 24 08:14 PM
    brewer...I don't understand what you mean "....as cash strapped as they are...".

    they have a ton of cash on-hand (which the the main point of Greg's article).

    Could you give us an example of your investing prowess if you only invest in companies that offer something no other company can match? That would be a monopoly correct?
    Reply | Link to Comment
  •  
    Nov 24 08:19 PM
    adding...just double-checked their latest published balance sheet...$8.6billion of cash ...in the bank!

    So how can you say that they are near bankruptcy and are strapped for cash?
    Reply | Link to Comment
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