First and foremost and very respectfully here, if read carefully ; article never alluded of market weakness constituting a shorting basis on this ticker, far from it. My whole point rather, was to challenge objectively, the correlation btwn - shorting a solid fundamentally stock such as VMW with its continued uptrend under shaky market conditions, and the pretension of pps unjustifiably high based on standard measures. My personal take is again, that shorting from the angle I just described would not be a viable option from an investment perspective. Day trade/wise...absolutely, one could be on the right side of the trade and scalp it to profitability a few times however, we are talking investment.
In relation to the valuation argument:
Rather then calc'ng only 25% increase btrw fiscal '05-'06 which is still a very significant and positive number......., I'd be nice to accumulatively state what the growth %wise has been, btwn 2003 to present......$100 million in revs 2003 with almost $2 Billion projected in 2008. Yes, explosive is the right word. Also Googles next 5 yrs growth estimates stand at 33.65% while Vmware's stand at 60%. Let's say 1.5 Billion will be added to books in 2008 based on 60% estimates, revenues should reach the $12 Billion mark by 2012.
Imho, to conclusively rate stock as 'over-valued' , based only on its multiples..I'd say ; it is not a sound counter-argument since noone can 100%, base an investment decision on this measure alone with all its already known susceptibilities. My take on Vmware is that ; fair value rather than anything else, should be determined in terms of its ability to maintain its monopoly position at this point along with its pricing premium, if it is to face competition in the very near future. They are in a monopoly position since only one seller and way too many buyers. Over 20,000 companies now running VMware technology, including 99 of the Fortune 100 companies...[they will be omnipresent at some point if they go with this rate.]
Competition/wise, Microsoft currently offers only basic virtualization offerings. To say that somehow, MSFT poses at these present stage in their virtualization efforts "great competition" honestly, it is analytically misinforming. It is true MSFT plans to introduce a more robust enterprise version in fiscal '08, but what we are not mentioning here, is fact of new offering still expected to be lacking in functionality relative to VMware’s comprehensive and constantly improving product set.
Imo, this is a solid company and it will continue to reflect its standing pps/wise.
Ron
Article published by Seeking Alpha
http://seekingalpha.com/article/47474-why-shorting-vmware-is-a-mistake#comment-96318
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