In the stock market every stock gives investors a different rate of return. This makes sense because every investment also has different levels of risk. This is one of the fundamental pillars of financial theory–the reward of every investment is linked to the risk it carriers. The higher the risk appetite of an investor, the higher the opportunity for them to make money, and equally greater are the chances of incurring a loss. I am restating this fundamental stuff to assess the current bullishness on Dell Inc. (NASDAQ:DELL) .
The PC Industry
The PC market is heading down, and it is becoming more obvious every day that handhelds are the future of computing. The leading PC OEMs have started working on their enterprise segments and improving their hybrid and tablet product lines. Hewlett-Packard Company (NYSE:HPQ) has suffered declining sales from both its PC and printer segments due to a shift in dynamics within the PC industry. The company has recently launched the cheapest branded tablet on the market. The Slate 7 aims to make the company relevant in the handheld space once again, while PC sales continue to slip.
The largest software company in the world has also started moving away from its PC-centric business model. Microsoft Corporation (NASDAQ:MSFT) has recently launched its first touch-based operating system, the Windows 8. It has also released its smartphone operating system, the Windows Phone 8. To further strengthen its options in the handheld market, the company has also launched the Surface Pro and Surface RT tablets. This is a clear indication from Microsoft that it doesn’t see a phenomenal recovery in the PC market coming any time soon, and is aiming to carve a share out of the smartphone and tablet markets.
Amongst all this turmoil the founder of Dell Inc. (NASDAQ:DELL) has offered to take the company private in a multibillion dollar deal. The stock was trading around $10.80 when rumors started to surface about a potential buyout, and as a result the stock has appreciated by approximately 30%. The highest price Dell traded in the last two years is around $18. I am using a smaller time frame because the PC slump started around 2 years ago, so Dell’s valuations at the start of this century are irrelevant to the argument.
The opposition from major stakeholders has created a lot of argument and controversy around this deal. There is too much ambiguity over the fair price of Dell Inc. (NASDAQ:DELL) that the buyers should pay. There are some ridiculous buyout price demands flying out there, ranging from $15 to anywhere in the low twenties. Ironically, everyone’s image of the fair value of Dell has changed overnight since the founder put forward a buyout bid.