[Editor’s note: This story links to a very informative piece from Techinsider, that you should go read right now.]Whitney Tilson, who runs hedge fund T2 Partners, recently sold most of his position in Microsoft and made Dell his fifth-biggest position.
This sounds crazy, right? Hardware is a slow-growth low-margin business. The action is all in cloud computing and consumer Internet companies.
In a presentation he shared with Techinsidr Tilson explained why he likes Dell so much:
- The stock is cheap. It’s trading at 5.3x trailing earnings, net of cash.
- Expanding margins. Although revenues have been flat for the last couple of years, Dell has been relentless about cutting costs. As a result, free cash flow margins have gone from 2.4% in FY’09 to 7.6% now.
- Well diversified. 50% of Dell’s business is from outside the U.S., and revenue is pretty evenly split between consumer (15%), small and mid-size businesses (23%), enterprise (29%), and public sector (30%). All of these segments are profitable — even consumer, which is not the case for competitors like HP.
- Poised for market share gains. The uncertainty around HP and the shakeup in leadership there gives Dell a great chance to steal market share.
Overall, Tilson thinks it’s reasonable for Dell to trade between $21 and $28, which is quite a nice bump from its price of about $15 today.
Dell’s stock is up about more than 4% today, ahead of most other tech stocks.
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