What a difference a quarter makes.
Actually, not even a quarter. Just two months ago, EMC
Interviewed by Reuters post-earnings, Tucci opened the door to a spinoff. He's backtracking from his "absolutely no interest" position of yester-month.
So that's good news?
Not if you're a VMware shareholder, it isn't. After all, the stock's low float and high demand act in tandem to support VMware's share price. Add more shares to the float by spinning off the stock, and you knock out one of the legs supporting the stock. (Incidentally, VMware shed 6% of its value yesterday -- but its own earnings report may have had something to do with that.)
Parent company EMC fared better, with shares up more than 12% since reporting a mammoth 18% leap in Q2 sales. But does EMC deserve to rise while its subsidiary takes a dive?
I think not
And here's why. EMC tacked on 80 basis points' worth of gross margin this past quarter, grossing 55.2% of sales. But what lower cost of goods sold (COGS) gave, operating costs took away.
Selling, general, and administrative expenses surged, and even a reduction in research-and-development expenditures still left the company with a lower operating margin this year than last -- ahead of Hewlett-Packard
So this is the point where I tell you to sell EMC, right? Not quite. Although profits growth is a mite short of "robust," this stock still looks fairly priced to me. Valued on its trailing-12-month free cash flow of around $2.3 billion, I see EMC as priced at about 13 times free cash flow, which is not an unreasonable price for a predicted 12% grower. Now all EMC needs to do is produce the growth.
Fool contributor Rich Smith owns shares of Vasco Data Security, which is also a Motley Fool Stock Advisor selection. VMware is a Motley Fool Rule Breakers recommendation. The Motley Fool has a disclosure policy.