"There is something about a Martini,
Ere the dining and dancing begin,
And to tell you the truth,
It is not the vermouth --
I think that perhaps it's the gin."

-- From "A Drink With Something In It," by Ogden Nash

On Tuesday night, we're getting a real earnings report from virtual server trailblazer VMware (NYSE: VMW). Check out last quarter's results, then get back here for an updated taste of this classy cocktail. Where's the gin?

What Fools say:
Here's how VMware's CAPS rating stacks up against some of its peers and competitors:

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating

Microsoft (Nasdaq: MSFT)

$283.5

17.3

***

Oracle (Nasdaq: ORCL)

$112.3

22.4

****

VMware

$22.0

94.6

***

Sun Microsystems (Nasdaq: JAVA)

$14.1

18.6

***

Citrix Systems (Nasdaq: CTXS)

$5.8

27.5

****

Data taken from Motley Fool CAPS on 04/21/2008.

Given the P/E comparisons above, you might expect our CAPS bears to complain about VMware being an expensive stock. You'd be wrong. Instead, they're worried about a shrinking business moat, as competitors ranging from Microsoft to free, open-source projects are starting to do what VMware does best.

The bulls on parade point out that the company has a sizable lead on any such competition, both in technology and -- perhaps more importantly -- brand strength. CAPS player georgeboole can sum it up for us:

Anyone who works in any kind of high-end IT environment is well aware of the power of the VMWare brand. [...] VMWare has first-mover advantage in an industry that is just gaining its wings. Indeed, entirely new industries (such as virtualized security) are spawning off of this expansive space.

What management does:
The margins are fat and generally getting fatter; sales and earnings have a lot of growing left to do.

Margins

12/2006

3/2007

6/2007

9/2007

12/2007

Gross

82.5%

82.6%

82.8%

83.5%

83.5%

Operating

17.7%

16.8%

16.2%

17.1%

17.8%

Net

12.2%

12.8%

12.9%

15%

16.5%

FCF/Revenue

32.3%

27.2%

23.8%

24.4%

21.4%

Y-O-Y Growth

3/2007

6/2007

9/2007

12/2007

Revenue

100.4%

89.7%

89.5%

79.7%

Earnings

100.3%

125.6%

236.3%

152.3%

All data courtesy of Capital IQ, a division of Standard & Poor's. Margin data reflects trailing-12-month performance for the quarters ended in the named months; growth is a simple year-over-year quarterly comparison due to the company's short public history.

One Fool says:
"Cheap" and "expensive" are such pliable, ever-changing terms. VMware stock is trading at many times its trailing earnings, cash flows, and sales, but it is doing so while enjoying terrific growth.

In VMware, I see reflections of a young Google (Nasdaq: GOOG):

Google

VMware

"No moat!"

Who cares about another bloomin' search engine? AltaVista/Lycos/WebCrawler is the bomb, dawg!

Who cares about another blasted virtualization product? I'm using Xen/MS Virtual Server/Virtual Iron, and you will, too!

"Too expensive!"

Buy Google at 260 times trailing earnings? You'd have to be crazy!

Buy VMware at 94 times earnings? I can see you're clearly nuts!

If you rejected Google in 2005 because the stock looked too expensive at $204 a share, I can't blame you. A lot of investors did the same -- myself included. But we've since missed out on a hefty 184% gain. The whole moatless theory hasn't really worked out so far, and we can debate all day whether Google did it on the strength of technology or name recognition.

Will we feel the same way when looking back at a $58.50 VMware stock in three years? Time will tell, of course, but I think the answer is yes. Much like the adolescent Google, VMware has not yet missed a Wall Street earnings estimate, and I expect the streak to continue, despite the recession worries swirling around. Hey, another Googly analogy! They must use the same gin.

Microsoft is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. 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 he holds no other position in any of the companies discussed here. He might kick himself about this later on. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.