When you buy shares in a company, there is always a risk that the price drops to zero. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Dell Technologies Inc. (NYSE:DELL) share price has soared 144% return in just a single year. On top of that, the share price is up 22% in about a quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. Dell Technologies hasn't been listed for long, so it's still not clear if it is a long term winner.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over the last twelve months, Dell Technologies actually shrank its EPS by 31%.
This means it's unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
Revenue was pretty stable on last year, so deeper research might be needed to explain the share price rise.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think Dell Technologies will earn in the future (free profit forecasts).
A Different Perspective
Dell Technologies shareholders should be happy with the total gain of 144% over the last twelve months. That's better than the more recent three month gain of 22%, implying that share price has plateaued recently. Having said that, we doubt shareholders would be concerned. It seems the market is simply waiting on more information, because if the business delivers so will the share price (eventually). While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Dell Technologies (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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