Gurley discovered Dell had 20-to-1 ROIC advantage versus competitors using return on invested capital framework.
“It turned out just by happenstance that Dell stood out like a sore thumb with ridiculously high ROIC numbers versus the rest of the industry. Like, night and day, like, 20 to one.”
Gurley says Dell's return on invested capital was 20 to 1 versus competitors, so extreme Mauboussin didn't believe it.
“Like, night and day, like, 20 to one. Wasn't even close. And in fact, it was so ridiculous. Like, the first time I showed him, he didn't Michael didn't believe it was true.”
Gurley identified Dell's 10-to-1 advantage over Compaq using return on invested capital analysis.
“we had done some analysis using this new tool called return on invested capital, and they had like a 10 to one advantage over Compact and the other companies because of how they worked their inventory and their positive cash flow cycle. And we went positive on it.”
Gurley spotted Dell trading at six times earnings after laptop fire and hedging problems, then went positive on the stock.
“It this the company was in trouble. It was trading at six times earnings. Their laptop had caught on fire, and they had this option hedging strategy gone awry”
Gurley used return on invested capital analysis showing Dell had 10 to 1 advantage over Compaq.
“we had done some analysis using this new tool called return on invested capital, and they had like a 10 to one advantage over Compact”
Gurley says Michael Dell acknowledged that Gurley's ROIC analysis revealed insights Dell didn't know about their own business.
“Michael kindly tweeted about my book the other day and said he taught us some things we didn't know ourselves about our business.”
Gurley found Dell trading at six times earnings after laptop fire and option hedging problems.
“It was trading at six times earnings. Their laptop had caught on fire, and they had this option hedging strategy gone awry Uh-huh.”
Gurley's ROIC analysis showed Dell had a 10 to 1 advantage over Compaq in inventory and cash flow.
“And they had like a 10 to one advantage over Compaq and the other companies because of how they work their inventory and their positive cash flow cycle.”