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The great Michael Dell; he's the kid that always shows up on the Forbes list of billionaires. Over the last few years his company and stock have made many people rich. Because of the phenomenal performance of Dell, many refer to it as one of the "Four Horsemen of the Nasdaq". A very honorable title considering the three other horsemen are Microsoft, Intel and Cisco. If you believed in the future of technology, it was a "no brainer" to invest your money equally into the "Four Horsemen" for an outstanding long-term return.
Although Dell reported a strong 41% increase in third quarter revenues (outstanding growth for any multi-billion dollar company) in November, the stock barely moved. It's hard to believe a 41% increase in revenues resulted in hardly a "yawn" from the investors. Could the stock have fallen out of favor amongst the investment community? It looks like Dell's past performance has created such high expectations that no one is surprised by a 40 plus percent quarterly increase in revenues. In fact since March 1999 the stock has remained in a relatively tight trading range between the low to mid 40s with the brief exception of a push toward 50 in early September 1999. Seems unusual for a stock that typically doubles in value annually. After splits, Dell has always ran back up to the split price without hardly any effort. So what is happening?
Some factors that may be contributing to the lack luster performance are the heightened competition amongst "box makers", lower profit margins and the introduction of the sub-$1,000 PCs or the "Free" PCs for that matter. Until recently, Dell ignored the exploding sub-$1,000 PC market, catering only to the demands of the highly experienced PC user. Like Intel Corp., Dell found itself admitting defeat and is currently in the process of aggressively attacking the sub-$1,000 PC market with the introduction of the "Webpc" – a very powerful PC priced at $1,000.
Although Dell may be a "Johnny come lately" to the low-end PC market, its strong management and the fact that it is the 800-pound gorilla of the box makers will give Dell some definite advantages. Also its early entrance into e-commerce and its extremely efficient direct distribution model will keep its competition running. As evidenced by the fact that Dell recently passed IBM this year to become the #2 worldwide supplier of PC servers. In only three short years, Dell's server market grew almost 500%, now only second to Compaq (you can bet Compaq is pretty nervous).
This year may not be the year for Dell, but long-term investors should keep a watchful eye on Dell. A strong breakout from its current trading range with high volume may be the beginning of another record climb for the stock. You can be certain that Michael Dell didn't become the "Billionaire Kid" by sitting on his laurels.
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