The VMware YoYo

I’m not sure what metaphors to use about the treatment this stock has been getting on Wall Street. It leaped (sprang, zoomed) out of the starting gate this summer and soared (rocketed) to as high as $125.25 a share. My thinking at the time: too far, too fast.

Then Oracle announced its virtualization play and the stock fell (tumbled, sank), only to bounce back within 24 hours as investors realized that it would take the database giant some time to be a significant threat.

Enough with the metaphors. As fears about the economy mounted, the bears took over on the NASDAQ and VMware headed south again, hitting a 52-week low of $51.50. Again, “too far, too fast” in my opinion. (Disclosure. I bought a modest number of shares on the dip and still hold them.)

But in the last week, sentiment reversed itself. With a couple of positive notes this morning, the stock is up about 4%, bringing the gain this week to more than 25%. Kash Rangan of Merrill Lynch upgraded the stock to a buy and set a price target of $105 a share, compared to the current value of $91.05.

Citi analyst Brent Thill reiterated his buy rating, and says the new “thin” version of the company’s hypervisor should keep VMware ahead of the competition into 2009.

Thill noted that that six of the leading OEMs (Dell, Fujitsu, Fujitsu Siemens Computers, HP, IBM, and NEC) will pre-install it on servers. “We believe this is a significant step towards enhancing VMW’s already dominant position in the virtualization industry, and is a pre-emptive strike against future Microsoft and Citrix/Xen releases in the battle for control of the x86 server virtualization market,” he wrote in a note to clients.

The Bottom Line: This company needs to be judged on its competitive position; the stock on its valuation, among other things. That has not been happening lately. Take a deep breath before you buy it — or sell it.