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Why VMware Shares Fell 18.6% in February

By Anders Bylund - Updated Mar 10, 2020 at 4:56PM

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The virtual computing expert's fourth-quarter report was a mixed bag, and management appeared to underestimate the upcoming impact of the coronavirus.

What happened

Shares of virtual computing veteran VMware (VMW -0.25%) fell 18.6% in February, according to data from S&P Global Market Intelligence. The stock tracked alongside the broader market all month long, coronavirus warts and all, until the bottom dropped out due to a mixed fourth-quarter report at the very end.

So what

Revenue increased by 11% year over year to $3.07 billion, and adjusted earnings rose 9% to $2.05 per share. Wall Street's consensus estimates had been calling for earnings near $2.17 per share on sales in the vicinity of $2.95 billion.

VMware provided optimistic revenue guidance but weak earnings targets for fiscal 2020. These projections included a small slowdown in Asian sales and operating profits due to the COVID-19 coronavirus, based on the geographically limited spread of the disease at the time.

Ared charting arrow trending downwards.

Image source: Getty Images.

Now what

VMware's management kept a stiff upper lip, but investors looked past the calming effort to the potential for a larger virus-based slowdown. The shift toward a subscription-based business model could be thrown off track by virus-related challenges. That being said, VMware is trading at the low, low ratio of 7.3 times trailing earnings right now. Investors searching for a value idea in the tech sector should take a second look at this company today.

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