Investors Appear Satisfied With Dell Technologies Inc.'s (NYSE:DELL) Prospects As Shares Rocket 27%

Dell Technologies Inc. (NYSE:DELL) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 206% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Dell Technologies may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 32.2x, since almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 9x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times have been pleasing for Dell Technologies as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Dell Technologies

Keen to find out how analysts think Dell Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Dell Technologies' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Dell Technologies' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 34% gain to the company's bottom line. The latest three year period has also seen an excellent 50% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 10% each year growth forecast for the broader market.

With this information, we can see why Dell Technologies is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Dell Technologies' P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Dell Technologies maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for Dell Technologies you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.