Trade-Ideas: VMware (VMW) Is Today's

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified VMware ( VMW) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified VMware as such a stock due to the following factors:

  • VMW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $155.5 million.
  • VMW has traded 1.3 million shares today.
  • VMW is trading at 1.70 times the normal volume for the stock at this time of day.
  • VMW crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on VMW:

VMware, Inc. provides virtualization infrastructure solutions in the United States and internationally. VMW has a PE ratio of 46.0. Currently there are 14 analysts that rate VMware a buy, 2 analysts rate it a sell, and 14 rate it a hold.

The average volume for VMware has been 1.8 million shares per day over the past 30 days. VMware has a market cap of $10.8 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.49 and a short float of 11.6% with 4.99 days to cover. Shares are down 11.6% year to date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates VMware as a hold. 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 and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity.

Highlights from the ratings report include:
  • VMW's revenue growth has slightly outpaced the industry average of 5.8%. Since the same quarter one year prior, revenues rose by 10.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • VMW's debt-to-equity ratio is very low at 0.07 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 2.11, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for VMWARE INC is currently very high, coming in at 90.83%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 19.63% trails the industry average.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Software industry and the overall market, VMWARE INC's return on equity is below that of both the industry average and the S&P 500.
  • VMW has underperformed the S&P 500 Index, declining 9.61% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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