VMWare (VMW) Marked As A Barbarian At The Gate

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.

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 $86.6 million.
  • VMW has traded 310,545 shares today.
  • VMW traded in a range 202.7% of the normal price range with a price range of $2.06.
  • VMW traded above its daily resistance level (quality: 34 days, meaning that the stock is crossing a resistance level set by the last 34 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. Currently there are 17 analysts that rate VMWare a buy, no analysts rate it a sell, and 11 rate it a hold.

The average volume for VMWare has been 1.4 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 0.92 and a short float of 11.4% with 9.56 days to cover. Shares are up 6.3% year-to-date as of the close of trading on Tuesday.

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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 expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 4.9%. Since the same quarter one year prior, revenues rose by 11.1%. 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 0.20 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 2.18, 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 88.95%. 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 12.97% trails the industry average.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, VMW has underperformed the S&P 500 Index, declining 9.28% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • 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.

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