NetApp : The Undervalued Investment Opportunity You Can't Afford To Ignore.
A Deep Dive into NetApp's Financials and Why It Could Be a Hidden Gem for Investors.
NetApp (NASDAQ: NTAP 0.00%↑ ) is a company that specialises in providing data storage and management solutions.NetApp's approach to data management, which prioritises data over infrastructure, sets it apart.Despite the challenging IT environment , the company reported a beat last quarter.I am keen to keep a watch on the upcoming quarters on how they capitalize on the growth potential of the potential of the hybrid and multi-cloud market.
NetApp : Last Quarterly Earnings Overview
NetApp's revenue for the quarter was $1.53B, but it missed revenue estimates by -$88.06M.The company returned $308M to shareholders through dividends and share repurchases.The company exceeded expectations for its EPS normalized actual, reporting $1.37 per share, which was $0.06 higher than estimated. However, its EPS GAAP actual fell short of expectations, coming in at $0.30 per share, which was $0.66 lower than estimated. I believe the company delivered a decent quarterly result and despite a challenging IT spending environment. The company managed to successfully controlled the elements within its control by maintaining a strong focus on innovation (introduction of BlueXP) and customer service.
NetApp Partnerships & What to Expect ?
CGI, a global IT consulting company, had recently announced a new partnership with NetApp. This partnership is on account of the fact that as more and more businesses look to digitize their operations, the demand for efficient data management and cloud storage solutions is expected to keep increasing. They will help organizations increase flexibility and reduce operational complexity and risk as they transition to the cloud.The timing of this partnership is crucial, as the COVID-19 pandemic has accelerated the adoption of cloud technology. I believe that one factor that could significantly impact CGI's stock going forward is the growth potential of the hybrid and multi-cloud market. As more organizations transition to the cloud, the demand for CGI's services is likely to increase, driving revenue growth and boosting the company's stock price. As such for Netapp, the growth potential of the hybrid and multi-cloud market is a factor that should be on radar as CGI looks to capitalize on this trend.
NetApp: Chart Overview
The stock had peaked as high as $88 in March 2022 post which the stock has been just trading in ranges and forming lower high and lower lows. As seen in the chart above it has been a long consolidation and now the stock is ready for a upward journey looking at the donchain channel and RSI (7). The challenging IT environment , company's ability to continually innovate, and probable partnership synergies indicate stock is poised to start its upward journey and a buy signal for the stock. This can be observed from its price action performance as well in chart below when we see its superior performance from peers STX 0.00%↑ .
NetApp Stock Fundamental Analysis : DCF Valuation
*In USD Millions . Estimates based on calculations by Equisights.
Conclusion
As seen above , we can clearly see Net App is undervalued and the risk-reward is highly favorable for the stock as it trades at $64.91 now. The terminal value is a key component of any DCF valuation as it accounts for the largest chunk of the total projected value of the company. There are a number of methodologies used to determine the same such as the perpetual growth rate method or the multiples method. In this case, we have gone ahead and determined the terminal value by applying the current EV/Sales ratio to our forecasted revenues of 2025. After applying the the discount rate i.e. WACC of 8.73%, we arrive at our target price of $80.24. The stock can be bought at current levels and accumulated for a target price of 25% from spot of $64.91. Click here to learn more on the actionable trade idea and subscribe to our Finance Newsletter and Premium Trade Ideas Plan.