VMware (NYSE:VMW) has been overly battered.
Recovering at double-bottom support dating back to late 2018, the stock could easily refill its bearish gap around $159. It’s also technically oversold at its lower Bollinger Band, with over-extensions on relative strength, moving average convergence/divergence and the Williams Percent Range.
In short, VMware stock appears to be a solid opportunity at the low.
VMware stunk up the market with earnings that were below estimates.
Adjusted earnings per share of $2.05 for its fiscal fourth quarter were below expectations for $2.17. Revenue did manage to rise 11% year-over-year to $3.1 billion. That number beat estimates for just under $3 billion. “Our results demonstrate the power of our broad-based portfolio and a strategy that continues to resonate with our customers,” VMware CEO Pat Gelsinger said.
In addition, Gelsinger said that “VMware delivered over $10 billion in revenue for the first time in company history in fiscal 2020, along with continued double-digit [top-line] growth.”
But despite the revenue beat and Gelsinger’s upbeat comments, earnings disappointed many investors. That’s because the company gave a sour outlook for fiscal 2021, expecting EPS of $6.55, as compared to analysts’ expectations for $7.03.
Analysts Are Still Upgrading VMW
However, some analysts believe the stock has priced in a good deal of negativity.
Jefferies analyst Brent Thill reiterated his “buy” rating for the stock, noting that “results missed license/total revenue guidance.” He also cited management’s note of “sub-optimal execution during the quarter resulting in some slipped deals.”
And, in the days leading up to earnings, Bernstein analyst Mark Moerdler raised his rating to “outperform” from “market perform” and raised his price target to $181 from $171. “VMware is positioned to outperform over the next 12-24 months,” the analyst wrote.
Also, as highlighted by InvestorPlace’s Mark Hake, “free cash flow margins for the year ending Jan. 31 [were] even higher. VMware generated $3.59 billion in free cash flow. This represents a margin of 35.8% on its annual revenue of $10.81 billion. Very few businesses can convert this much of [their] revenue into free cash flow.”
The Bottom Line on VMware Stock
Fear often gives way to a good deal of opportunity.
It’s how some of the world’s top investors have made their money. Sir John Templeton would tell investors to buy excessive pessimism. Warren Buffett says a “climate of fear is your friend when investing; a euphoric world is your enemy.” And of course, we all remember his advice to “be fearful when others are greedy and greedy when others are fearful.”
With a good deal of fear priced into VMware stock, it’s time to get greedy at the lows. With patience, I strongly believe the stock could refill its bearish gap at $159.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.