Comparing the trend in VMware‘s (NYSE:VMW) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 15% once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of VMware’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, ‘2007-08 vs. 2020 Crisis Comparison: How Did VMware Stock Fare Compared with S&P 500?‘
The World Health organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The S&P 500 reached a record high on February 19th as there were signs of effective containment in China and hopes of monetary easing by major central banks. Post that the S&P 500 saw an 18% drop when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia. Between February 19th and April 13th, VMW stock lost 17.7% of its value (vs. about 18% decline in the S&P 500). The stock registered it’s lowest point on March 18th post which we saw some recovery.
VMW’s Stock Has Fallen Because The Situation On The Ground Has Changed:
VMW stock has suffered as states and countries are on lockdown. As industries have halted production and services, the demand for software, and web services have also taken a hit with consumers focusing solely on essentials and not discretionary products. We believe VMW’s Q1 and Q2 results will confirm this reality with a drop in revenues across all the segments. That said, the company has been encouraging the vast majority of its US staff to work from home, so there will be less disruption to the company’s portfolio of software and web services.
But VMW Stock Fared Worse During The 2008 Downturn
We see VMW stock declined from levels of around $73.62 in October 2007 (the pre-crisis peak) to roughly $17.25 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 76.6% of its value from its approximate pre-crisis peak. This marked a higher drop than the broader S&P, which fell by about 51%.
However, VMW recovered post the 2008 crisis to about $35.21 in early 2010 – rising by 104.1% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
Will VMW’s Stock Recover Similarly From The Current Crisis?
Keeping in mind the fact that VMW’s stock has fallen by 17.7% this time around, much lower than the 76% decline during the 2008 recession, we see a potential rebound of about 15% to levels of around $153 once economic conditions begin to show signs of improving. This marks a partial recovery back to the $162 level VMW stock was at before the coronavirus outbreak gained global momentum.
That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture, and complements our analyses of Coronavirus impact on a diverse set of VMW’s multinational peers including Microsoft, Amazon and Salesforce.com. The complete set of coronavirus impact and timing analyses is available here.