To some extent, arguing the bull case for Dell
My Foolish colleague, Alyce Lomax, gave us some of the convincing reasons why Dell tastes so bad right now. There are the accounting troubles, the falling market share, and trouble with customer service. And on top of all that, on a P/E basis, Dell isn't exactly cheap at 18 times earnings.
What you have behind that bitter taste, though, is some solid nutrition.
An earnings multiple of 18 may not be considered cheap, but the P/E is not the whole story when you have a company that generates significantly more real cash than it does GAAP net income. And what I like even more is that Dell takes a good amount of that cash and returns it to shareholders in the form of share buybacks. As of its most recent balance sheet, it has bought back a net $18 billion of treasury stock.
I'm not going to dismiss the problems completely -- they're real and need to be addressed. At this point, though, I believe that the shares have been adequately, if not more than adequately, adjusted for the risks the company faces. This means shareholders can comfortably sit on Dell's rock-solid balance sheet without having to worry about significant downside from the stock.
What you're left with is a historically shareholder-friendly company with a very motivated founder who owns 10% of the stock back at the helm, and a couple of real, but fixable, problems. Is Dell perfect right now? Nope. But right now it's priced so that anything north of terrible should bring nice returns for those willing to down those brussels sprouts.
Fool contributor Matt Koppenheffer own shares of Dell, a Stock Advisor and Inside Value pick, but does not own shares of any of the other companies mentioned. You can visit Matt at Motley Fool CAPS. The Fool's disclosure policy knows that a diversified portfolio, just like a diversified dinner plate, is a great way to go.