Which Boston Companies are Fueling Innovation?

Boston is full of academics and critical thinkers, everyone knows that. Sometimes, however, we forget just how fast-paced the scientific arena can be in metro-Boston. EMC Corporation (NYSE: EMC) is one of the organizations in the city that has been making strides in the recent months.

EMC develops and distributes various services and solutions in informational technology. Whether it is information storage and consolidation or data virtualization and management, EMC boasts a wide array of products for its customers. EMC also has a non-controlling interest in VMware (NYSE: VMW). The company's stock has been unable to appreciate, despite strong earnings results throughout the year and continuous growth. Relative to its intrinsic growth, EMC's stock has only grown 5% throughout 2011.

EMC has experienced powerful revenue growth in the last five quarters. In Q2 2010, revenues were about $4.02 billion; in Q2 2011, revenues were about $4.85 billion. That is approximately 20% growth in revenues. Operating expenses gradually increased as well, but not at the same rate as revenues, which means that operating margin has been increasing and is always good for any company. Interestingly, EPS has been range-bound between $0.20 and $0.30 over the last five quarters. The primary reason can be attributed to fluctuations in profits and costs, but ultimately, the global economic slowdown is most likely the real reason.

Like its fluctuations in net income, EMC's cash flows were volatile over the last five quarters. EMC has maintained positive cash flows from operations, attributed primarily to net income and depreciation & amortization. In fact, the lack of positive effect from working capital is a good thing, because companies that use balance sheet tricks to increase cash in the short-term always pay for it in the long-term.

EMC has also pursued multiple acquisitions quarter-over-quarter along with purchases of property, plant, and equipment. Lastly, EMC has sparingly issued debt, but has continuously repurchased shares. This indicates increased confidence by management to foster growth without leverage and to decrease equity dilution. Overall, EMC has been losing cash, but investors have to consider the reasons why. It appears that the company is temporarily decreasing cash in order to expand its investments in itself.

EMC's balance sheet has been increasing over time, as it becomes apparent that the company is increasing inventories, goodwill (as a result of acquisitions), and property as its contracts and operations grow as well. EMC's short-term debt is fairly stagnant while its long-term debt is being paid down - this pattern means that as long-term debt is being converted to short-term debt, EMC is paying its obligations in a timely manner. Lastly, retained earnings have been increasing, which boosts value to shareholders.

From a quantitative standpoint, EMC's numbers appear to be performing well and appear to be signifying growth. According to Jack Mollen, an HR executive at EMC, 90% of EMC's revenue in 2010 resulted from innovations developed in the previous 14 months. If EMC is able to continue this particular trend, it means that it is able to deliver cutting edge technology to its client without compromising consumer demand. This type of innovative growth is what has added so much value to Apple (NASDAQ: AAPL) shareholders.

Based on the numbers and the prospects of continuing robust, innovative growth, EMC may become a high-profile success story like other companies in the technology sector. Investors may believe that EMC's growth warrants a higher stock price, but they may also believe that companies like EMC operate in a mature, inflated industry that already demands high share prices. Regardless, investors will have to consider where the overall economy is headed and subsequently determine if a technology stock like EMC will be able to succeed in the volatile environment.

EMC Corporation is currently trading at about $24, up about 5.2% for the year.