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Southeastern Asset Management has been a long-term holder of Dell, and started buying the stock when it was trading at above $30. Its average cost is estimated to be above $25. If the deal went through at $13.5, Southeastern would have lost almost 50% of its original investment, excluding dividends.
Dell is now traded at $13.7, slightly above the deal price, suggesting that investors are anticipating higher prices for the deal.
To be fair, the Dell deal does “grossly undervalue the company.” Though not growing, Dell has always been profitable, as shown in the EPS chart below:
DELL data byGuruFocus.comAnd it is now traded at a historical low P/E ratio:
DELL data byGuruFocus.comAnd P/S ratio:
DELL data byGuruFocus.comA median P/E of the last 10 years would suggest a deal price of above $25:
DELL data byGuruFocus.comThis report is a part of Real Time Picks. To learn more about Gurus’ latest picks, check out Real Time Picks.
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