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VMware, Inc. Message Board

  • steelelana steelelana Nov 26, 2007 5:57 PM Flag


    I posted this over a month ago, only to be put on ignore
    by people who wouldn't listen to me. So here it is again.
    VMW's growth rate= 45.1%
    I'll add 15% because they suprise (remember, this is a
    5 yr growth rate, so no, you can't add 35%)
    So their growth rate is 60%
    60 x 1.2 (a typical PEG for a growth stock) = 72.
    It's P/E should be 72.
    72 x .80 = $57.60
    That's where I would start buying VMW, at $57.60
    Then I'd continue to add if it drops further.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Soon you will be able to buy it at less than $40 in a month, and less than $30 in two months.

    • 57 might be a fair price but I want to pay 20% less so I can make some money and protect myself from normal risk.

    • very close to your same thought process in LDK

    • I had a chance to buy into VMW around 75 back in September (or somewhere around then). All I saw from any analysis or articles at the time was that it was overvalued while looking unstoppable. It really seemed destined to have this happen eventually. It seemed too risky to invest in so I moved on. And it went well over 100 shortly after.

      I do feel bad for those who held through and lost on their gamble. But I also think the writing was on the wall for a while now. Here's hoping for a bounce back for you.

    • Thanks for this post, btw. I missed it the first two times that you posted, but then I don't watch this board frequently. I wish people would post more about how they valuate stocks.

      So then, you're using .80 for 12month EPS? Isn't that a bit low? The last two quarters garnered around .50, and with an expected growth, shouldn't this be higher?

      Thomson Financial is using a Forward P/E of 1.17. So
      72 * 1.17 = $84.24.

      • 1 Reply to ypmuv
      • In Steel's valuation formula which is a rule of thumb by Warren Buffett as claimed by Steel, if you use forward p/e then you have double count the growth in 2008 twice. That's why she used 2007 trailing p/e instead.

        But VMW is a little bit different. First of all, based on software's life cycle, even MSFT and ORCALE can chime in the business, VMW may be able to enjoy the business for at least a couple of years down the road. To my knowledge, only IBM has such capability to compete with VMW at current stage. IBM just threw away more than 4000 local servers and use mainframes instead inside IBM, which will save IBM at least hundreds of millions in electricity and maintenance saved.

        With the economy slowdown, firms will cut their costs, especially in new IT investments. Luckily VMW can help enterprise save money over the long haul, so VMW's business may not be affected too much from this angle.

        Also, a large institutional holdings will quickly stabilize VMW stock price. In fact, without so much institutional interest, we might have seen 40s already like all other growth stocks. Before the E/R and lowered guidance, VMW had held very firm.

        Finally, VMW has a hidden higher growth rate already on its book called defered earnings. VMW's contracts have been long-term oriented just like IBM's global service contract, servicing a firm for many years to come just like utility firm. Once VMW has achieved a cash flow, the quality of that cash flow is very high within years to come. From this angle, VMW should deserve a much higher growth rate, perhaps more than 80% over a period of 5 years, then if you plug in this number, you may get a price higher than 100.

        Yet, at current bear market condition, accross the board, you need to apply a 30%~50% discount for that valuation for any growth stocks like VMW, BIDU and FSLR.

        Conclusion: Add in at this level is a very wise move if the broad market will not deteriorate too much just like we experienced shortly after Martin Luther King's Day.

        All in all, add below 55, the lower VMW goes the more you should add and within next couple of month, VMW will gradually trend up to 70s and even 80s, depending on the broad market improvement.

    • Agreed 100%%, as I said earlier today, in the mid-50s VMW has finally gone back down to its appropriate valuation, with its forward P/E right around the industry average. It *could* go to the mid-40s, but I wouldn't count on it, so I'm buying here and will average down if it drops to ~48.

    • fair value is about 7.50. Live with it.

    • I wonder what became of this guy when I tried to get him to sell at $110 on October 26th...

    • I like your calculation but I would take your final figure which is $54 times 2 equal $108 because of the 30% short interest and the tiny 38 mil share float

      so my "fair" value is $110

      Just don;t get caught in the squeeze, once the market turns the hedge funds will start covering and go long as soon as they can, they are always first in first out unlike retail investors

    • almost exactly my calculations and why I said 50-60 way back, don't waste your breath though, longs just listen to pumping, it's ok by me, rather be right, ridiculed and making money.

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