VMWare Inc. (NYSE:VMW) shares closed above $100/share on Tuesday marking a new milestone in its short life as a public company. There is little doubt that the company is the leader in virtualization but many investors are concerned about the company's low float, which can exaggerate its price moves - in both directions!

The VMWare IPO shares several similarities with companies that went public during the dot-com boom. First, they kept the stock at a low float in order to spur large price movements and attract investors. Secondly, they were in a sector that was pumped up by cheerleaders who continued to talk up the stocks until the end. And finally, there was obviously a large valuation assigned to companies that simply couldn't be justified once growth slows.

VMWare is currently trading with a P/E of 156x, which would require it to grow substantially in order to be justified. According to Jon Ogg at 247WallSt, "The stock is trading anywhere from 3-times to 5-times the sales of the entire virtualization market industry-wide to 2010." Clearly, the stock is trading at a lofty valuation and a low float is helping to keep shorts away.

It is also interesting to note that EMC Corporation (NYSE:EMC) doesn't appear to share the enthusiam exhibited by VMWare shareholders. After all, the company owns 86% of VMWare and current valuations put the company's EV at $33.45 billion compared to EMC's EV of $45.7 billion. EMC shares only saw a 50% run-up following the spin-off announcement.

In the end, analysts will eventually be forced to bail on this stock but it could take awhile before reality kicks in. VMWare is definitely in a hot market, but the company's current valuation surpasses that of the industry itself. Despite any reasonable growth estimates, it is impossible to keep running. Combined, these factors make VMW a stock worth watching!

Related Companies
Ninetowns Internet (NINE)
Formula Systems (FORTY)
QuadraMed Corporation (QD)