Since Dell announced its Q1 earnings miss (see also Dell's February conference call transcript), a plethora of articles have appeared on Seeking Alpha about the stock. William Trent, Chad Brand and Andrew Schmitt are bullish. Doug McIntyre, Yaser Anwar, Phil's World and "Average Joe" are bearish. Meanwhile, Bill Miller has bought the stock for the Legg Mason Value Trust. Every large cap growth manager should read these articles and consider the points they make. Here are links to them and key extracts:
William Trent (on May 9th):
Trading below $25 after hours, the stock is packing a $51 billion enterprise value. Its free cash flow was $4.8 billion in FY2005 and $4.1 billion in FY06. Making allowances that there will always be fluctuation gives us an average free cash flow of $4.5 billion, and an EV/FCF (enterprise value to free cash flow) multiple of 11.3x.
Chad Brand (on May 16th):
I am not saying that Dell stock is poised for the late-1990’s-like ascent. Those days have long passed. However, Dell now trades at a discount to IBM (NYSE:IBM) and I think that makes little sense. Dell has $5 in net cash per share on its balance sheet, taking its enterprise value down to $19 per share. That’s a trailing P/E ratio of merely 12.
Andrew Schmitt (on May 16th):
Dell’s supply chain for electronics rivals Wal Mart’s (NYSE:WMT) in terms of efficiency and they will eventually succeed in their efforts to commoditize the consumer electronics space. The current market’s perception that PC’s are anything but commodities is a brief vacation from reality, and Dell is the best commodity producer out there. I believe the cost structure of Dell’s supply chain and web retailing model will beat HP’s.
Douglas McIntyre (on May 9th):
There is now more and more evidence that Dell’s high-growth days are behind it. The goal of being a $100 million company someday no longer makes sense to investors; it is almost an embarrassment.
Phil's World (on May 9th):
Lenovo is getting to be serious low-cost competition for Dell, while HP (NYSE:HPQ) has been winning market share as more people just pop down to the local computer store and buy a box rather than wait for their Dells.
Average Joe (on May 16th):
Obviously Dell won’t disappear, but the question here is whether the stock is a good investment over the near or even the long term. The PC market just isn’t what it once was and until something really shakes up the industry (like the plasma and LCD screens did for TVs), it’s not going to offer a great source of growth for Dell.
Yaser Anwar (on May 16th):
Dell’s inventories and receivables have grown faster than sales since the start of 2003. That’s worrying, especially considering that Dell prides itself on building computers to order. Rising receivables and inventory are signs that problems are being stored-up for the future.
On a personal note, I want to thank these -- and all the other -- Seeking Alpha contributors. Their intelligence and passion shine.