Investors hate $40 billion software firm VMware (VMW) right now. Which is problematic for shorts, considering the fact that this stock has dramatically outperformed the broad market over the past 12 months. Since last summer, VMW is up 38.4%, versus a 22.4% climb from the S&P 500. And with a mountain-high short interest ratio of 19.44, it would take a full month of buying pressure for shorts to cover their bets at current volume levels.
That makes VMW a textbook short squeeze opportunity to watch this week.
VMware is one of the biggest vendors of virtualization solutions that help companies get more utility out of their existing physical machines. The firms tools are used to transform a single physical PC into multiple virtual machines, enabling data centers to offer more hosts without shelling out (or finding space) for new physical servers. With the demand for cloud services that weve seen in the last several years, thats a good side of the trend to be on. But VMW's current price tag (and 40 times earnings multiple) reflects that investor optimism -- and that's a big part of why shorts are piled into shares.
No, VMW may not be a bargain, but it does boast a $5.1 billion net cash position on its balance sheet and a fast-growing desktop virtualization business. While there's no shortage of competition in this space right now, VMware has demonstrated that it's able to keep performing fundamentally. Look for earnings at the end of July as a potential short-squeeze catalyst.