NetApp Inc (NTAP, Financial) has seen a daily loss of -2.65 %, with a 3-month gain of 2.41% and an Earnings Per Share (EPS) of 5.53. The question that arises is: Is the stock fairly valued? In this article, we delve into a comprehensive analysis to answer this question. Keep reading to gain valuable insights into the valuation of NetApp.
NetApp Inc is a leading provider of enterprise data management and storage solutions. The company's segments include Hybrid Cloud and Public Cloud, with the Hybrid Cloud segment generating the maximum revenue. The Hybrid Cloud segment offers a portfolio of storage management and infrastructure solutions that help customers recast their traditional data centers with the power of cloud. This portfolio is designed to operate with public clouds to unlock the potential of hybrid, multi-cloud operations. Hybrid Cloud is composed of software, hardware, and related support, as well as professional and other services.
NetApp (NTAP, Financial) has a current stock price of $75.66 per share and a market cap of $15.80 billion. The GF Value, an estimation of fair value, is $75.41, indicating that the stock is fairly valued. Here is the income breakdown of NetApp:
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 gives an overview of the fair value that the stock should be traded at. It 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.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
NetApp (NTAP, Financial) stock gives every indication of being fairly valued based on the GuruFocus Value calculation. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. Because NetApp is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength of NetApp
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. NetApp has a cash-to-debt ratio of 1.11, which is worse than 54.03% of 2371 companies in the Hardware industry. GuruFocus ranks the overall financial strength of NetApp at 6 out of 10, which indicates that the financial strength of NetApp is fair.
This is the debt and cash of NetApp over the past years:
Profitability and Growth of NetApp
It is less risky to invest in profitable companies, especially those with consistent profitability over the long term. A company with high profit margins is usually a safer investment than those with low 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 90.34% of 2444 companies in the Hardware industry. Overall, the profitability of NetApp is ranked 9 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of NetApp is 7.6%, which ranks better than 59.63% of 2336 companies in the Hardware industry. The 3-year average EBITDA growth rate is 7.1%, which ranks worse than 56.55% of 1963 companies in the Hardware industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, NetApp's return on invested capital is 16.76, and its cost of capital is 10.86.
The historical ROIC vs WACC comparison of NetApp is shown below:
In summary, the stock of NetApp (NTAP, Financial) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 56.55% of 1963 companies in the Hardware industry. To learn more about NetApp stock, you can check out its 30-Year Financials here.
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