Pondering VMWare (VMW)

I’ve been pondering a purchase of VMWare (VMW) for a few months now… each time I run a screen, VMW shows up. Whenever I feel ready to pounce I try the most simple analysis in the book (PE ratios) and I cringe. At current prices the stock is at forward P/E over 50 on 2010 estimates. And the story does not get much better for 2011…. already at 44x earnings, 1.5 years out. Does it matter? No – one of the best charts out there.

Some stocks like this and Baidu (BIDU) … caring about valuation metrics only hurts you. I like to buy at 1-1.33x growth rate if I can (growth at a reasonable value). Certain “buy buy buy” guys say you can buy up to 2x growth rate. VMW is scheduled to grow 21% over the next 5 years… so that means you can buy up to 42x. But this stock is in excess of 50 FORWARD (not trailing). Boo Yah… don’t think, just buy.

VMware, Inc. provides virtualization infrastructure software solutions and related support and services primarily in the United States.

Disclosure: No position

About Mark Hanna 542 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

Follow Mark on Twitter @fundmyfund.

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