Why VMware, Inc. Shares Sank Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of VMware fell nearly 11% early Wednesday, then settled to close down 9% despite slightly better-than-expected first quarter results.

So what: Quarterly revenue rose 14% year over year to $1.36 billion, which translated to 9% growth in VMware's adjusted net income to $0.80 per share. It's also worth noting on a comparable basis -- which means excluding revenues attributable to Pivotal and divestitures in 2013 -- revenue would have increased 18%. Analysts, on average, were looking for earnings of just $0.79 per share on sales of $1.35 billion.

After the small beat, however, some investors might be disappointed VMware simply reaffirmed full-year guidance, which calls for 2014 revenue between $5.94 billion and $6.10 billion. The midpoint of that range is a hair below analysts' expectations for 2014 revenue of $6.03 billion. Meanwhile, 2014 adjusted operating margin is expected to hold steady at roughly 31%.

Now what: But that hardly seems deserving of today's 9% plunge. To the market's credit, though, shares don't exactly look cheap trading around 9 times last year's sales and 22.5 times next year's earnings estimates. In any case, while I'm not particularly anxious to dive in today, I think any further punishment to VMware shares in the coming weeks could create an attractive opportunity for patient long-term investors to open a position.

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The article Why VMware, Inc. Shares Sank Today originally appeared on Fool.com.

Steve Symington owns shares of Apple. The Motley Fool recommends and owns shares of Apple and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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