The past six months have been a windfall for NetApp’s shareholders. The company’s stock price has jumped 42.1%, hitting $122.35 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy NetApp, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Is NetApp Not Exciting?
Despite the momentum, we're cautious about NetApp. Here are two reasons you should be careful with NTAP and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, NetApp’s 3.8% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the business services sector.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect NetApp’s revenue to rise by 4.1%, close to its 3.8% annualized growth for the past five years. This projection is underwhelming and implies its newer products and services will not accelerate its top-line performance yet.
Final Judgment
NetApp isn’t a terrible business, but it isn’t one of our picks. Following the recent rally, the stock trades at 15.1× forward P/E (or $122.35 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
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