Jun
11
2010
Market Weakness Creates VMWare Inc (VMW) Buying Opportunity
VMWare
Inc (VMW) stock has been on a nice run over the past
year from a low $26.12 a share on July 8, 2009 to a recent high of
$70.71. The company
develops, markets, and sells the very popular software product by the
same name
that allows enterprises world-wide the ability to better utilize
computer
server space by partitioning the resources into separate virtual
servers.
Many website hosting providers are now offering cloud
computing solutions based on VMWare or similar software packages (See
Rackspace.com). The ability to install, copy, and reinstall a complete server
allows for easy redundant processing and nearly 0% downtime. The future will
most likely feature little to no failure rates for major websites that have
readily available servers for processing at peak times.
Analysts have raised the company’s earnings expectations
over the past 90 days from 28 cents a share to 32 cents a share for the current
quarter. The company is now schedule to announce their earnings on July 19th.
The next quarter has had a similar upgrade pattern from 29 cents a share to 32
cents a share this week. The current quarter earnings have grown 60% when
compared to the same quarter a year ago, while revenue is expected to be 43%
better year-over-year for the quarter. Yearly growth is estimated to be 31%
earnings and 33.5% revenue compared to last fiscal year.
The Price to Earnings ratio is a little rich at this time
even after a recent dip in share price. The current P/E ratio is 136 trailing
and 44.15 forward. This translates into a PEG ratio of 2.45 for the upcoming 5
year period. PEG ratios close to 1 are ideal with anything above 1 being
considered overpriced all things considered. You could build a small trading position
in VMWare leading into their earnings.
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