NetApp Inc (NTAP, Financial) experienced a daily gain of 2.71%, and over the past three months, it has seen a gain of 13.87%. With an Earnings Per Share (EPS) of 5.53, we aim to answer the question: is NetApp (NTAP) fairly valued? By delving into a comprehensive valuation analysis, we invite you to explore the intrinsic value of this enterprise data management and storage solutions company.
Company Overview
NetApp Inc (NTAP, Financial) is a leading provider of enterprise data management and storage solutions. The company operates through two segments: Hybrid Cloud and Public Cloud. The Hybrid Cloud segment, which generates the majority of the company's revenue, offers a portfolio of storage management and infrastructure solutions designed to operate with public clouds, enabling customers to unlock the potential of hybrid, multi-cloud operations. With a current stock price of $79.7 per share and a market cap of $16.60 billion, we compare this to the GF Value, an estimate of the company's fair value, to gauge NetApp's intrinsic worth.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This value is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The stock price is likely to fluctuate around the GF Value Line.
At its current price of $79.7 per share and the market cap of $16.60 billion, NetApp stock shows every sign of being fairly valued. Because NetApp is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss for investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key factors to consider include the cash-to-debt ratio and interest coverage. NetApp has a cash-to-debt ratio of 1.11, which ranks worse than 53.8% of 2353 companies in the Hardware industry. The overall financial strength of NetApp is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. NetApp has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $6.20 billion and Earnings Per Share (EPS) of $5.53. Its operating margin is 17.57%, which ranks better than 90.55% of 2422 companies in the Hardware industry. Overall, the profitability of NetApp is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of NetApp is 7.6%, which ranks better than 59.6% of 2317 companies in the Hardware industry. The 3-year average EBITDA growth is 7.1%, which ranks worse than 56.88% of 1941 companies in the Hardware industry.
ROIC vs WACC
Profitability can also be evaluated by comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, NetApp's ROIC was 16.76 while its WACC came in at 10.79.
Conclusion
In summary, the stock of NetApp (NTAP, Financial) shows every sign of being fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 56.88% of 1941 companies in the Hardware industry. To learn more about NetApp stock, you can check out its 30-Year Financials here.
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