NetGear, Inc. (NASDAQ:NTGR) is what I refer to as an “under the radar” stock. This is a company whose products are very widely used (either you or someone very close to you most likely has a NETGEAR router in the house), but the stock doesn’t get much coverage in the media or on investment websites. With the company set to report earnings on Friday, I thought now was a good time to discuss this company and its prospects for the future.
NetGear, Inc. (NASDAQ:NTGR) is one of the market leaders in networking products for home and business users. The company makes both wired and wireless products for Ethernet networking, broadband access, and network storage. Basically, if you need to do having to do with getting online or on a network, NETGEAR’s products can help.
Lately, the company has had issues with lower-than-expected shipments, but I think this is temporary. NetGear, Inc. (NASDAQ:NTGR) has a solid history of growing its earnings, and held its own during difficult economic times, as seen in this chart of the company’s revenues over the last decade.
Valuation and Growth Projections
NETGEAR trades for a very reasonable valuation of just over 10.5 times last year’s earnings, which looks even better when you consider that the company has $377 million in cash and no debt, and a market cap of just over $1 billion. Backing cash out of the equation, and the market is valuing NetGear, Inc. (NASDAQ:NTGR)’s business alone at just 6.8 times earnings.
The consensus is for earnings of $2.56 this year, growing to $2.95 and $3.06 in 2014 and 2015 respectively, for average earnings growth of 9.5% annually, which is excellent for a company that is so cheaply valued.
To see how expensive or not NETGEAR is compared to its peers, let’s take a quick look at two other networking companies, F5 Networks, Inc.
(NASDAQ:FFIV) for a more direct comparison and Cisco Systems, Inc. (NASDAQ:CSCO), the largest networking company.
By market capitalization, F5 Networks, Inc. (NASDAQ:FFIV) is about five times the size of NetGear, Inc. (NASDAQ:NTGR). The company makes application delivery networking products to help manage traffic to servers. Unlike NETGEAR, F5’s products are geared primarily towards enterprise customers. F5 Networks, Inc. (NASDAQ:FFIV) trades at a seemingly high 20.4 times TTM earnings, and with a consensus forward earnings growth rate of just over 10%, so it does appear a bit expensive.