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 "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) 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 $187.1 million.
  • VMW has traded 1.8 million shares today.
  • VMW traded in a range 202.9% of the normal price range with a price range of $4.23.
  • VMW traded above its daily resistance level (quality: 10 days, meaning that the stock is crossing a resistance level set by the last 10 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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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 43.6. Currently there are 17 analysts that rate VMWare a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for VMWare has been 1.6 million shares per day over the past 30 days. VMWare has a market cap of $12.5 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.61 and a short float of 19.2% with 9.71 days to cover. Shares are up 4.9% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates VMWare as a buy. 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, increase in stock price during the past year, 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 ratings report include:
  • VMW's revenue growth has slightly outpaced the industry average of 11.4%. 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 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.

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