On two measures they passed it easily, and on three others they fell short. It is worth saying that to get to these valuations, I've factored in some quite demanding growth projections, which may turn out to be way too optimistic. For example, it means Dell having 2009 sales of about 135 billion, up from about 20 billion for the year ending January 1999. It also assumes that Dell will keep throwing off huge amounts of free cash flow, well above reported earnings. Many forecast the demise of the PC as we know it, and this is obviously a risk for Dell.
Computers are commodity products, and price is often the buyer's main consideration.
Although Dell is currently the low cost operator, if it loses that mantle and a competitor can get close to its level of customer service, the current and potential valuation would soon look pretty rich. Also, prices of PCs are falling, meaning Dell has run fast just to stand still as revenue per unit sold falls. As I said on Wednesday, this is a borderline decision. I took the plunge and never regretted it. They have, however, largely matched the movement of the market since we bought them.