Is It Time To Reconsider NetApp (NTAP) After Recent Share Price Weakness?

• If you are wondering whether NetApp's current share price still reflects good value, this article will walk through what the numbers are really saying about the stock.
• NetApp closed at US$98.22 recently, with returns of a 1.4% decline over 7 days, an 8.4% decline over 30 days, a 7.7% decline year to date, a 14.8% decline over 1 year, 54.2% over 3 years and 62.4% over 5 years.
• Recent coverage of NetApp has focused on its role in data storage and cloud solutions and how investor expectations around that positioning feed into the share price. This backdrop helps explain why the stock has seen mixed shorter term returns while longer term returns have been stronger.
• On Simply Wall St's valuation checks, NetApp scores a 6/6 valuation score. We will unpack this using several common valuation approaches before finishing with a different way of thinking about value that could be even more useful for long term investors.

Find out why NetApp's -14.8% return over the last year is lagging behind its peers.

Approach 1: NetApp Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes estimates of the cash a company may generate in the future, then discounts those cash flows back to today to arrive at an estimate of what the business could be worth right now.

For NetApp, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow is about $1.68b. Analysts have supplied several years of Free Cash Flow estimates, and Simply Wall St extends these further, with projected Free Cash Flow of around $2.34b in 2035 based on the ten year schedule provided.

After discounting each of those projected cash flows back to today, the DCF model arrives at an estimated intrinsic value of about $167.64 per share. Compared with the recent share price of $98.22, this implies an intrinsic discount of 41.4%, which suggests the shares are currently priced below this cash flow based estimate of value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests NetApp is undervalued by 41.4%. Track this in your watchlist or portfolio, or discover 55 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for NetApp.

Approach 2: NetApp Price vs Earnings

For profitable companies, the P/E ratio is often the go to yardstick because it ties what you are paying directly to what the business is currently earning per share. It gives you a quick sense of how many dollars investors are willing to pay for each dollar of earnings.

What counts as a “normal” P/E depends heavily on how fast earnings are expected to grow and how risky those earnings are. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually point to a lower multiple being more reasonable.

NetApp is trading on a P/E of 16.53x. That sits below the broader Tech industry average of 22.19x and well below the peer group average of 55.36x. Simply Wall St also calculates a proprietary “Fair Ratio” for NetApp of 25.96x, which represents the P/E that could be appropriate given its earnings profile, industry, profit margins, market value and specific risks.

This Fair Ratio can be more useful than simple peer or industry comparisons because it adjusts for differences in growth, risk, profitability and size rather than assuming all companies deserve similar multiples. Since NetApp’s current P/E of 16.53x is below the Fair Ratio of 25.96x, this points to the shares appearing undervalued on this earnings based view.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your NetApp Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives on the Community page to attach your own NetApp story to the numbers by linking your view of its AI and hybrid cloud opportunity, risks around competition and geography, and assumptions for revenue, earnings and margins into a clear forecast and Fair Value. You can then compare that Fair Value with the current price to decide whether NetApp looks attractive or not. The platform automatically refreshes your Narrative when fresh news or earnings arrive and allows very different views to sit side by side. For example, one investor might think NetApp could reasonably be worth closer to the high analyst target of US$130 based on stronger margin and cloud traction, while another might anchor on the low target of US$100 because they focus more on storage market pressures and partnership risks.

Do you think there's more to the story for NetApp? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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