Is EMC Corporation (EMC) a Good Stock to Buy?

EMC’s closest peers are NetApp Inc. (NASDAQ:NTAP) and VMware, Inc. (NYSE:VMW). These two stocks each trade at a premium to EMC, though in NetApp’s case the gap is fairly narrow. Specifically, the respective trailing P/Es for NetApp Inc. (NASDAQ:NTAP) and VMware, Inc. (NYSE:VMW) are 25 and 45. Both stocks are also down significantly from their levels a year ago, and both companies are projected to improve their bottom lines over the next couple of years. In NetApp’s case, as at EMC, the forward earnings multiple is in much more reasonable value territory (13, here) and the company’s most recent fiscal quarter did show strong earnings growth versus a year earlier (though revenue was only up slightly). VMware actually had the opposite situation occur: in Q4 2012, revenue grew by over 20% compared to the fourth quarter of 2011 but earnings growth was only modest.

We can also compare EMC to Hewlett-Packard (NYSE:HPQ) and to International Business Machines Corp. (NYSE:IBM), two large companies with significant enterprise software and solutions businesses. HP’s stock price has rallied by over 40% year to date; while the company is certainly struggling, as shown by declining revenue and earnings, the stock is quite cheap according to analyst consensus (the current-year P/E, for example, is 6) and so even a weak year might beat expectations. It might be worth considering as a contrarian/value pick. International Business Machines Corp. (NYSE:IBM) is also not doing particularly well, with revenue about flat in its most recent quarter compared to the same period in the previous year and net income up only modestly. At a trailing earnings multiple of 15, it probably needs to deliver better financials in order to be considered for value status.

EMC is a bit dependent on its projected earnings growth over the next couple of years for our liking, and so it is probably not a good buy until the business starts showing that it can continue to grow its earnings at double-digit rates. Hewlett-Packard looks somewhat more interesting; with that company, there is likely going to be some continued deterioration in the financials but the decline might be limited enough to keep low priced in value terms.

Disclosure: I own no shares of any stocks mentioned in this article.