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TheStreet Open House

Why VMware (VMW) Stock Is Retreating Today

Stock quotes in this article: VMW

NEW YORK (TheStreet) -- Shares of VMware Inc. (VMW) are lower by -3.50% to $97.25 on heavy volume in mid-afternoon trading on Tuesday, after the company announced it would stop providing long term guidance, MarketWatch reports.

The company, which provides virtualized cloud infrastructure solutions, made the announcement at the VMware analyst day during the VMworld conference in San Francisco.

The company will no longer offer long term guidance as it is focusing investors' attention on aggregate top and bottom line success and execution against stated objectives, said a UBS  (UBS) analyst in a note to clients, MarketWatch added.

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Additionally, VMware announced several new data initiatives including a collaborative effort with Google (GOOGL) to deliver high-performance virtual desktops and workstation-class graphics to Google Chromebooks.

Separately, TheStreet Ratings team rates VMWARE INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate VMWARE INC (VMW) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VMW's revenue growth has slightly outpaced the industry average of 11.5%. Since the same quarter one year prior, revenues rose by 17.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • VMW's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, VMW has a quick ratio of 2.14, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • VMWARE INC's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, VMWARE INC increased its bottom line by earning $2.34 versus $1.71 in the prior year. This year, the market expects an improvement in earnings ($3.51 versus $2.34).
  • The gross profit margin for VMWARE INC is currently very high, coming in at 90.60%. Regardless of VMW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 11.46% trails the industry average.
  • You can view the full analysis from the report here: VMW Ratings Report

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