NETGEAR Inc. NTGR has seen a significant rally in the past year, with its stock price appreciating 50.6%. The appreciation is better than the Computer Networks Industry, the broader Zacks Computer and Technology and the S&P 500 composite’s growth of 22.8%, 5.6% and 9.4%, respectively

Price Performance

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The NTGR stock closed the last trading session at $22.11 and is down 30% from its 52-week high of $31.55.

Investors may question whether this pullback from 52 week high presents a buying opportunity. Let us discuss NTGR’s prospects and determine your portfolio's best course of action.

NTGR’s Growth Factors

Strength in the NETGEAR for Business (“NFB”) segment as well as in the premium products portfolio within the CHP business bodes well. Driven by ongoing momentum for ProAV managed switch products (which grew in double digits year over year), revenues from the NFB segment jumped 14.9% and 2.9% sequentially to $80.8 million. Efforts to expand Wi-Fi LAN business are another tailwind. 

Moreover, NETGEAR completed a successful destocking plan across CHP and NFB, leading to an $86 million reduction in inventory in 2024. This is expected to help the company align sell-in with sell-through with channel partners, thereby increasing revenue predictability. 

NTGR will be directing the majority of incremental investments for the year toward its NFB business with special emphasis on in-sourcing software capabilities, expanding product portfolio and developing a robust B2B go-to-market capability to enhance market share.

However, NETGEAR noted that within the NFB segment, though demand for its ProAV line of managed switches remains robust, it is witnessing lengthy lead times for supply. This is likely to result in lower shipping of these products in the first quarter, leading to a muted revenue performance. Operating margins in the first quarter are likely to be affected by the muted top line. Despite these short-term headwinds, NTGR anticipates double-digit top-line growth for the NFB segment for 2025. 

NETGEAR, Inc. Price, Consensus and EPS Surprise

NETGEAR, Inc. price-consensus-eps-surprise-chart | NETGEAR, Inc. Quote

Increasing recurring revenues bode well. NETGEAR witnessed a 25% spike in recurring services revenues in the quarter under review. The company generated $35 million of recurring revenues in 2024. It now has 556,000 recurring subscribers. Increasing subscriber revenues are essential for long-term financial stability and cash-flow generation.

NETGEAR is confident to retain a competitive edge in new product introductions based on the Wi-Fi 6 and 7 standards. The company introduced key products, such as the M7 Pro, the first mobile hotspot combining 5G and WiFi 7, generating significant consumer interest. The increasing demand for new WiFi 7 home networking products is expected to drive top-line expansion in the coming days.

NTGR’s Focus on Capital Allocation

For the quarter that ended on Dec. 31, 2024, NETGEAR generated $21.5 million in cash from operations. It also had $408.7 million in cash and cash equivalents and short-term investments and $395.7 million of total current liabilities.

NETGEAR repurchased 423,000 shares worth $10.7 million in the quarter under review. In 2024, NTGR bought back $33.6 million worth of shares. The company has 3.4 million shares left under existing authorization

Northbound Estimate Revision Activity

Near-term headwinds aside, analysts seem positive about NTGR as reflected by solid upward estimate revision for the current and the next year.

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NTGR’s Compelling Valuation

NTGR stock is trading at a discount with a trailing 12-month price/book multiple of 1.18 compared with the industry’s multiple of 5.27. 

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How Should Investors Play NTGR Stock?

Despite short-term supply constraints, momentum in NFB and the premium segment of CHP business, attractive valuation and northbound estimate revision activity make it a compelling investment option.

NTGR currently has a Zacks Rank #2 (Buy). Moreover, it has a Growth Score of A. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or 2 and a Growth Score of A or B offer solid investment opportunities.

Other Stocks to Consider

Some other top-ranked stocks within the same space are Cisco Systems CSCO, Intrusion Inc. (INTZ) and RADCOM Ltd. RDCM. All stocks presently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CSCO’s fiscal 2025 EPS is pegged at $3.72, up 1.9% in the past 30 days. CSCO earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 4.1%. Its shares have increased 24% in the past year.

The Zacks Consensus Estimate for INTZ’s 2025 bottom line is pegged at a loss of 58 cents, an improvement from a loss of 70 cents in the past 30 days. INTZ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 4.73%. Its shares have plunged 75.9% in the past year.

The Zacks Consensus Estimate for RDCM’s 2025 EPS is pegged at 92 cents, unchanged in the past seven days. RDCM’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while matching on one occasion, with the average surprise being 18.86%. The stock has gained 5% in the past year.

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This article originally published on Zacks Investment Research (zacks.com).

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