Ask any of those among our 82,000-strong CAPS community who have rated EMC (NYSE: EMC) whether the data storage specialist is undervalued, and chances are you'll get an enthusiastic answer. Behold:



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Data current as of Jan. 29.

And yet this crowd could be measurably larger by this afternoon. Earlier today, EMC reported fourth-quarter and full-year results that, once again, look outstanding. Let's review.

For the fourth quarter, revenue was up 19% to $3.83 billion. Non-GAAP per-share net income -- that is, earnings excluding the effects of one-time charges and stock-based compensation -- was up 25%. GAAP earnings were up 33%.

For the full year, EMC improved sales by 19% and non-GAAP per-share earnings grew by 26.4%. Better still, gross margin was up 1.5 percentage points to 54.5%.

VMware (NYSE: VMW), which is more than 80% owned by EMC, deserves thanks for a portion of the gains. The storage and systems virtualization specialist realized an 80% top-line gain in Q4. Roughly 13% of EMC's non-GAAP per-share earnings -- for the quarter and the year -- were derived from VMWare.

Therein lies the hope for EMC investors. Only 5% of the market for virtualization software is yet penetrated. If VMWare can fend off the likes of Microsoft (Nasdaq: MSFT), Cisco (Nasdaq: CSCO), and Red Hat (NYSE: RHT) and maintain a leadership position in the space, EMC investors will sow the rewards.

But that day could still be years away. Management's initial guidance for 2008 calls for 50% revenue growth in the VMware business and -- wait for it -- 9% growth in its core information infrastructure unit, which accounted for 90% of revenue in 2007. Not exactly the stuff of a growth stock, is it?

Nope, but that doesn't mean EMC is expensive. If we take management at its word, EMC today trades for roughly 15 times its $1.04 in projected 2008 non-GAAP net income. That's at worst reasonable, but it may prove cheap -- if, that is, you believe VMWare can fend off its well-financed competitors.

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Microsoft is an Inside Value pick. Try this market-beating service free for 30 days. There's no obligation to subscribe. and Rule Breakers contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. The Motley Fool's disclosure policy is virtually stylish.