Finally, some fundamental performance to go along with speculation….. But still not enough
Shares of technology company Research In Motion Ltd (NASDAQ:BBRY) moved higher by 8.15% on Wednesday after the company reported an order for one million BB10 phones from one of its “established partners.” This news added some validity to the presumed rumors of success on behalf of the BB10. And although this “established partner” remains a mystery, most believe it to be either AT&T or Verizon.
For the last three months I have remained highly critical of Research In Motion Ltd (NASDAQ:BBRY), as all of its six month 110% rally has been due to acquisition rumors and BB10 speculation. There was never any reason to believe BB10 would be a success, however one million orders is pretty impressive, even for a skeptic such as myself.
I suppose the real question of determining upside lies in expectations, and currently, Wells Fargo is anticipating 2.5 million phones sold for the May quarter, which may be possible. With that being said, I want to see how the new phones hold up over a three-five month period, and then if good, I will buy and feel comfortable in paying a premium for the stock. At this point, there has simply been too much disappointment to get too excited.
Spinoff provides lift, but stock may still be too expensive
The cloud-based company VMware, Inc. (NYSE:VMW) saw an 8.08% rise on Wednesday after a slew of announcements including a spinoff of it and EMC’s joint venture the “Pivotal Initiative.” This new “Pivotal” spinoff will be owned in part by VMware (39%) and will aim to assist clients working on big data projects or developing web/cloud apps. This news came as VMware gave a business presentation and issued guidance that was slightly below the consensus.
VMware is a company that has seen losses of about 15% over the last two months as the company’s valuation aligns to reflect its fundamental growth. The truth is that VMware, Inc. (NYSE:VMW) is no longer a 30-40% annually aggressive growth company, but rather 15-20%. My problem is that despite 15-20% growth guidance, the stock is still priced like a company with 30% growth, trading with a price/sales ratio of 7.0 and a P/E ratio of 47.00. Over the next year the company should see its bottom line double, however while this isn’t the most overvalued midcap stock in the market, it is not the cheapest either.