Dell (DELL) Rises As David Einhorn Says Shares Are Cheap, Establishes a Position
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Price: $438.46 +0.21%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.7%
EPS Growth %: +109.9%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.7%
EPS Growth %: +109.9%
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Dell Inc. (Nasdaq: DELL) is seeing solid upside action Wednesday after a big money hedge fund manager said he has been aggressively buying the stock.
In a letter to partners, David Einhorn of Greenlight Capital said the fund has established their position in DELL at an average price of $15.53.
Einhorn said that while the computer business in mature, DELL has broadened its offerings and now half of the company's sales and profits comes from other products.
Dell has roughly $7 per share in net cash and earns about $2 per year, the hedge fund manger notes. Dell's P/E is a measly 7x, and net of cash it is less than 4x, he highlights. This reflects a collapsing business, although Dell should continue to grow EPS, albeit at a modest rate.
Einhorn said Dell has done a "miserable" job allocating capital over the year, now they may be getting it right.
"During the dot-com heyday, when the P/E multiple was sky-high, DELL routinely plowed every available dollar back into share repurchases," Einhorn commented. "After the tech bubble burst and the P/E came down to earth, it opted to hoard cash and pay fancy multiples to acquire growth. More recently it seems to have figured out that buying back stock at nosebleed prices makes no sense, but share repurchases at bargain prices can add real shareholder value."
Shares of Dell are up 1.8 percent.
In a letter to partners, David Einhorn of Greenlight Capital said the fund has established their position in DELL at an average price of $15.53.
Einhorn said that while the computer business in mature, DELL has broadened its offerings and now half of the company's sales and profits comes from other products.
Dell has roughly $7 per share in net cash and earns about $2 per year, the hedge fund manger notes. Dell's P/E is a measly 7x, and net of cash it is less than 4x, he highlights. This reflects a collapsing business, although Dell should continue to grow EPS, albeit at a modest rate.
Einhorn said Dell has done a "miserable" job allocating capital over the year, now they may be getting it right.
"During the dot-com heyday, when the P/E multiple was sky-high, DELL routinely plowed every available dollar back into share repurchases," Einhorn commented. "After the tech bubble burst and the P/E came down to earth, it opted to hoard cash and pay fancy multiples to acquire growth. More recently it seems to have figured out that buying back stock at nosebleed prices makes no sense, but share repurchases at bargain prices can add real shareholder value."
Shares of Dell are up 1.8 percent.
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