(FORTUNE Magazine) – Portfolio manager Foster Friess isn't especially pleased with the recent performance of his flagship Brandywine fund. After all, during the second quarter this famous highflier trailed the S&P 500 by more than five percentage points. It would have been a lot worse if Friess hadn't listened to his analyst David Harrington, who insisted that Friess add to the fund's already huge position in Dell Computer. It was a gutsy call, really, because the PC maker's stock was just coming off a big run, having tripled over the previous nine months. But Harrington was right on the money: Dell's stock subsequently doubled again, producing a $100 million gain for Brandywine in the second quarter alone. "Dell has been a massive home run for us," says Harrington. "If we had put every dollar of the fund into Dell, it would have been the right decision."

Too bad he didn't. While other PC makers like Compaq and Gateway have been hot stocks over the past year, Dell has been spectacular. The stock is up more than 500% since its low last July, rising from $20 a share to $138.

So now the questions is, Will Dell climb even higher, or is it too late to get in? With all that appreciation, the stock's price/earnings multiple has greatly expanded, though not to the dramatic heights you might expect--from about 13 a year ago to a hardly stratospheric 27 today. What's more, the company's earnings are expected to increase by more than 60% this year. On the other hand, Dell's success has drawn the attention of competitors like Compaq and IBM, which recently announced plans to cut their PC prices, and in Compaq's case, to switch partly to a direct sales model in imitation of Dell.

Certainly the landscape is different today than in January 1996 when Dell began its run. Back then Dell was seen as a solid but vulnerable PC maker facing a number of big challenges. In fact, what made the stock cheap to begin with was that so few people saw the great times just around the corner. The company had just announced it was having problems making a transition to higher-speed machines, and Wall Street analysts had lowered their earnings estimates. That drove Dell's stock down from the low 20s to the mid-teens.

None of this surprised analyst Harrington at Brandywine. "The Street goes from loving to hating PC stocks every three weeks," he says. "The trick is to figure out when investors are overreacting." Harrington reckoned this was one of those times, and Brandywine began loading up on the stock. The shares moved back up above $20, but analysts were still concerned about several high hurdles that Dell faced. Would it be able to crack the fast-growing, high-margin server business? Could Dell fix quality problems vexing its laptops? And would Dell's business model of selling directly to customers translate to the overseas market?

It has since become clear that the answer to all these questions is yes. Servers now account for 6% of sales, up from 3% a year ago. The laptop troubles seem to have been solved, with portables now accounting for 20% of Dell's $10 billion in total revenues. And direct selling is working abroad: According to technology research firm IDC, Dell's global market share ranking has risen from No. 8 last year to No. 3, behind Compaq and IBM, thanks in large part to a now booming foreign business. (In contrast, Apple Computer, whose CEO Gil Amelio recently resigned, has dropped from No. 4 a year ago to No. 9.)

Needless to say, all that success has produced some eye-popping numbers. "Dell is now growing revenues by 50% in an industry growing by 20%," says Philip Rueppel, an analyst with Alex. Brown who has had a strong buy on the company for the past two years. Says Rick Schutte of Goldman Sachs, another long-standing Dell bull: "This is a company that is delivering and beating the numbers. I have earnings climbing 63% for the year, but I wouldn't be surprised if they end up coming in as high as 80%." For all their optimism, even these bulls have found themselves consistently surprised by the company's growing strength.

Dell has long enjoyed a core of faithful institutional investors such as Merrill Lynch Asset Management and Transamerica, but when the company started posting those strong gains last year, momentum investors like Fidelity, AIM, and Friess began accumulating multimillion-share positions. As if that weren't enough to drive the shares up, on September 5 Dell was added to the S&P 500. Within ten days the stock roared ahead 22%, to over $40, as giant index funds run by Vanguard, Barclays, and State Street scrambled to buy Dell.

Of course no one has benefited more from all this than CEO Michael Dell, who owns nearly 27 million shares, or some 16% of the company. A year ago that stake was worth $537 million. Today, Michael Dell is very likely the richest man in Texas--take that, Ross Perot--with a fortune exceeding $3.5 billion. That's more than $100 million for each of his 32 years.

What about the old Wall Street saw that says if you are going to buy tech stocks, buy software companies because their products are protected by patents, and avoid PC makers because they're in a commodity business with no barriers to entry? Then how come Dell's stock is running circles around even Microsoft? "What that axiom ignores," says Rueppel of Alex. Brown, "is that Dell has differentiated itself through its brand name and, most important, its distribution system."

By selling directly to customers, Dell eliminates the middleman, passing the savings on to its customers. Rueppel figures Dell's machines cost 15% to 20% less than a comparable Compaq or IBM. Lower prices ramp up sales, which in turn widen margins. And by custom-assembling each order, Dell has also essentially eliminated inventory.

While lower prices from competitors could theoretically crimp Dell's growth, the real threat at this point is the general state of the PC industry. Some analysts are wondering if the weaker-than-expected numbers recently announced by Intel portend a more widespread softness in the PC business. The bull case: that so far growth remains strong globally, while in the U.S., massive upgrades are still ahead. Over 50% of all existing PCs still run on 486 chips or less, which suggests millions of units of pent(ium)-up demand for new machines.

Analysts say Dell will also benefit from consolidation. There are still more than 150 PC makers worldwide, and the top three, Compaq, IBM, and Dell, have only 25% of the market combined. Those with the strong brands and effective distribution plans are sure to gain share. "Looking down from 30,000 feet--yes, the stock has moved up," says Schutte of Goldman. "But do I think Dell will still outperform the S&P 500 over the long haul? Absolutely."

Meanwhile Dell's supercharged stock has actually created problems at Brandywine. Friess' five-million-share holding in Dell had grown so large in dollar terms that he sold more than a million shares recently for diversification's sake. Since then the stock has moved up so quickly, the reduced stake is back to the value of the original position. Some problem. Friess and his analyst still like the stock, even with it up sixfold. "We wouldn't own the stock unless we thought it was going up," Harrington says. "You have to look at what's ahead for a stock, not what's behind it."