The Case for Dell
The Consumer Electronics Stock Blog has a piece on mixed signals coming from DELL. Much of DELL’s recent price weakness (at least so far as the buzz would have one believe) is a result of the dramatic slowdown in its growth rate over the past few years. It is certainly true DELL is no longer a hypergrowth story. Comparisons to Google or even Apple are meaningless.
So the question is not whether DELL is a growth story, but whether it is a GARP or value story. And here investors may be missing the forest for the trees:
- Hasn’t a rejuvenated Hewlett Packard taken share over the last year? It has certainly taken share of investor dollars. But market share? Try again. HP’s growth rate has stayed well below 10% and most of its profits are coming from the printer, not the PC division. HP has turned around fairly dramatically, but its best quarter of growth is comparable to DELL’s worst.
- Are people moving to Mac? Not yet. Not in the numbers that would impact DELL.
- Is the exclusive relationship with Intel hurting as AMD chips gain share? Hmm… possibly. But DELL isn’t sitting on tons of inventory. If the lack of Intel chips hurts, all they have to do is pick up the phone to order from AMD. They would lose some marketing incentives Intel provides in exchange for exclusivity, but don’t for a second think DELL isn’t ruthless enough to cut the cord if it is in their interest to do so.
Meanwhile, the forest is a vast international opportunity (DELL derives two thirds of its revenue in North America, compared to one third at HP) and a stock trading at a free cash flow yield of 6% while growing in the low double digits.
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