Even elite stocks, the ones you can buy and hold forever, hit volatility.
But over time, those peaks and valleys smooth out into a long-term upward trend.
That’s the case with the cloud computing stock we’ll bring you today.
This company may be the best cloud software vendor on the planet. And we’re not the only ones who think so.
Its quality products and services have translated to great success in the stock market too. The share price is up 108% over the last three years, compared to 38% for the S&P 500.
But after a 57% rise earlier in the year, the stock fell by 36% between mid-May and late August.
That’s our opening…
Mind you, the company has turned in two straight earnings beats during that decline. It’s now beaten earnings in six straight quarters.
But perhaps the stock’s success over the years – along with a number of recent acquisitions – has made investors question the high share price.
As a number of metrics show, they were wrong to question it.
In fact, the stock was already undervalued before the share price began to fall in May.
That’s probably why the price has started to rebound over the last month or so. But even now, it’s undervalued by as much as 55%.
No wonder it just got a top score from our Money Morning Stock VQScore™ system.
As we said, this is an elite stock – one that you can buy and hold forever, even as it has its peaks and valleys. Now that the price has dipped well under its fair value, it’s the perfect time to get in if you haven’t already.
This Cloud Computing Stock Is a Great Pick for Any Market Conditions
It was 20 years ago that VMware Inc. (NYSE: VMW) launched its first product, a software application to run multiple desktops (on multiple operating systems) on a single computer.
The company now has more than 24,000 employees and nearly $9 billion in annual revenue. It’s also a leader in cloud computing and IT.
More accurately, VMware is the leader in those spaces.
Earlier this month, analysis firm IDC named VMware as the No. 1 software vendor for both cloud system and service management and IT automation and configuration management.
VMware’s products and services also include the highly profitable trends of blockchain, Big Data, and the Internet of Things. And the applications encompass a wide range of critical industries.
In healthcare, for example, VMware offers customized software that is a godsend for practitioners and institutions. Because healthcare is a necessary industry in good times and bad, VMware can count on strong revenue even when the economy slows.
The company tools provide instant analytics, automation, and remote medical care, among other services. The only thing a doctor or nurse needs is a mobile phone. If they lose it, VMware can have it erased – protecting any private patient data – and replaced almost instantly.
Speaking of that data, some people might raise alarm bells about privacy issues when it comes to Big Data. And they’re right to do so: Security and ethical data management are critical components in any kind of data collection.
But let’s be clear. Data collection in healthcare can improve quality of care and even save lives. It can reduce fraud by creating accountability across healthcare systems. If one provider is routinely recommending unnecessary procedures or charging exorbitant amounts for them, it will show up in the data.
Secondly, VMware has amply demonstrated its commitment for security. For example, its most recent acquisition was a $2.1 billion purchase of Carbon Black, which specializes in cloud-based security.
Investors were biting their nails over that and other investments – hence the drop in share price. But the next time there’s a breach in security for a major cloud provider, VMware investors are likely to look back at acquisitions like this one and sigh in relief.
They’ll probably also be happy about the gains they’ve made by that time…
Now Is the Time to Buy VMW
In spite of its recent price drop, VMW is still up 108% over the last three years. That success isn’t surprising when you consider that it has grown sales every year since 2009. Sales have grown 343% in that time and are still growing by double-digit percentages.
Earnings per share (EPS) was up 22% last fiscal year. And it is projected to continue to grow through 2022. And as we mentioned, VMware is coming off six straight earnings beats.
Net Operating Cash Flow has also increased in three straight years, and as of July, it’s almost twice what it was in 2015.
All of that is probably why 16 out of 26 analysts tracked on FactSet call VMW a “Buy” or “Overweight.”
The stock’s price/earnings ratio for the last 12 months comes in at just 45% of the industry average. So don’t be surprised if this stock more than doubles in price before long.
Even when it does, this is a stock that should offer rewards for years to come. So you can enjoy the short-term pop and then continue to enjoy the gains over the long haul.
— Stephen Mack
Source: Money Morning