Is Wall Street Buying theVMWare Valuation?

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Includes: DVMT, VMW
by: TraderMark

I mentioned VMWare (NYSE:VMW) a few times earlier in the blog.Never bought it in the fund as Marketocracy doesn't really add new IPO's very quickly to their service so I am locked out of that market.

However, for those that do not know, EMC (EMC) spun off VMWare and has a 86% stake in the company. After the 'crazy' runup in VMWare its market capitalization is now $36.5 billion. Not bad for a company a month old. EMC? Worth $44 billion.

Now a 86% stake in a company worth $36.5 billion would mean a value of $31.3 billion. Meaning of EMC's $44 billion, $31.3 or 71% of its value was due to VMWare, and the other 29% was due to its baseline operations. This tells me that Wall Street is not really buying the VMWare valuation. Or that EMC is the most undervalued stock in the universe.

But since everyone knows the story and EMC is a very well known, highly traded stock - it points to the street saying this VMW run is just a pure speculative run of a low float IPO. EMC has only run up 13.5% in the past 2 months. So either the 'Street' thinks VMWare is a bloated pig or they seem to have forgotten about EMC. Somehow I doubt that.

VMWare reports October 24th - so let's see if that provides a reality check or if reality no longer applies. VMWare now trades at 146x 2007 estimates and 103x 2008 estimates. Not that it matters.

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