Last week shares of VMware (NYSE:VMW) gapped down on a number of unrelated developments, and the stock continues to fall, trading in the middle range of the last 62-week high and low point.
Let’s dig into the details and see whether this stock’s prospects are still bright.
First, competitor NetApp (NASDAQ:NTAP) announced weak earnings guidance for the next quarter. Investors needlessly panicked, and shares subsequently plunged 20%. Shares of VMW slid on speculation that this could be a sign of larger weakness in the industry. Additionally, an analyst at Sanford C. Bernstein & Co. speculated that market saturation could impede growth.
I must respectfully disagree with this speculation. The opinions of one analyst don’t hold much sway when the rest of the analyst community forecasts 21% sales growth and 20% earnings growth for the next quarter — over double the industry average!
In addition, this company has a strong history of earnings surprises; in the last earnings announcement the company trumped the consensus earnings estimate by 10%.
Even though this is one of the largest makers of virtualization software, VMware is clearly in growth mode. The company recently signed a deal to acquire Wanova Inc., which should give VMware better exposure to the market for desktop virtualization management.
So, the long-term outlook for VMware remains solid: I expect this stock to firm up. My current recommendation is to pick up this Moderately Aggressive stock for less than $108 per share, but I will let you know immediately if any other developments arise.