If virtualization is the new hotness, then VMware (NYSE: VMW) is Miss Universe and Tom Brady rolled into one. While trying to get that image out of your head, you might want to see how the virtual leader will look under the bright lights on Monday night, when it reports the first fourth-quarter earnings in its young history.

What Fools say:
Here's how VMware's CAPS score measures up to some of its peers and competitors:

Market Cap (millions)

Trailing P/E Ratio

CAPS Rating

Microsoft (Nasdaq: MSFT)

$313,970

22.0

***

Oracle (Nasdaq: ORCL)

$105,870

22.6

****

VMware

$30,870

161.2

***

Sun Microsystems

$13,660

24.1

***

Citrix Systems (Nasdaq: CTXS)

$6,450

30.8

****

Data taken from Motley Fool CAPS on 01/25/2008.

One P/E ratio in that gang sticks out like a sore thumb, and you can probably guess what our CAPS players are saying about our protagonist today. Catcalls of "completely overpriced," "it's gotten ahead of itself," and various price targets far below the current share price follow the curious VMware investor down Bear Street.

On Bull Boulevard, it's a different tune altogether. Those players, who outnumber the bears 10-to-1, see incredible promise in the virtual server market, where the company is a first-mover and share leader. There is hardly any discussion of valuation on that side of the tracks.

What management says:
In return for a $150 million investment in VMware, pre-IPO parent EMC (NYSE: EMC) agreed to give Cisco Systems (Nasdaq: CSCO) a seat on VMware's board of directors. Cisco CFO Dennis Powell took that position in early November 2007. He is easily the board member with the highest public profile and possibly the widest range of industry connections, and he stepped right into a vacancy in the vital audit committee. That's an instant upgrade to the company's strategic brainpool, folks.

What management does:
Faithful readers of our Foolish Forecasts will note that this numerical rundown is shorter than usual. But VMware simply doesn't have any more data to work with, so I'll settle for an abbreviated look until Father Time catches up with the trailing-12-month comparisons.

Annnnnd ... what we can tell from this limited data set is that VMware is solidly profitable, and generates plenty of free cash in every quarter.

Margins

9/30/2006

3/31/2007

6/30/2007

9/30/2007

Gross

83.2%

82.6%

82.8%

83.5%

Operating

24.2%

16.8%

16.2%

17.1%

Net

17.3%

12.8%

12.9%

15.0%

FCF/Revenue

56.2%

27.2%

23.8%

24.4%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
There is no doubt that the bears have a solid point: Even with insanely optimistic growth expectations for the next 10 years, it's hard to justify a $30 billion market cap today. This would be one of those promising stocks that I'd follow from afar until a slight stumble sends share prices plummeting, and only then would I give serious thought to investing real money here.

That said, I think this is much closer to the next Google (Nasdaq: GOOG) than the next Crocs -- more Eli Manning than Miss Teen South Carolina -- so I will keep a watchful eye on the pricing situation. As for next week's report, the company has blown out Street expectations in each of its first two earnings announcements, and given the special attention Microsoft is lavishing on VMware these days, I'd say that Redmond is getting nervous. So, here's to another outperformance.

Microsoft is a Motley Fool Inside Value recommendation -- read all about it with a free 30-day trial pass at your side. Or just sign up for a free CAPS account to find the identities of your fellow Fools who were quoted above. They might have more to tell you!

Fool contributor Anders Bylund is a Google shareholder, but holds no position in any of the other companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.