Cloud computing used to be th wave of the future. During the Summer of 2011 I devoted an entire newsletter on it.
Now? The stocks are inconsistent, and their movements depend on momentum. If momentum in the sector — or company’s business — is up, then the stock is too. But lower estimates a little bit and the stock can come crashing down.
Momentum is currently up for stocks in this area. But the industry isn’t growing as rapidly as it used to. These stocks were 35% growers and now you may get 20% growth and a lot of nervousness. Vmware (VMW) is a perfect example of this.
One Year Chart
Look at the wild gyrations in VMW during the last year. High aroound $100 and low of around $65. Now momentum is up for the stock and the sector, yet VMW is stuck in the middle of this range.
You can see along the bottom that this company is growing around 20% each quarter. The Estimated Long Term Growth Rate is 19% and the stock has a P/E of 21. So this is a 20% grower which is nice, but the stock pattern looks scary. This seems like a risky 20% grower.
Fair Value
With VMW selling for around $80 there’s limited upside for 2014 — and 2015 too.
Sharek’s Take
Vmware (VMW) would be a good stock to pick up around its lows — in a time of negative momentum. But that’s a tough thing to do as you can’t trust the sector. The rapid growth phase of cloud computing is past us, and buying a 20% grower that looks to be turning into a 15% grower is dangerous because the P/E could drop from 20 ($80 stock) to 15 ($60 stock). Right now I think there are plenty of better options to invest in. VMW stays on the radar.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
