Despite a more than 50% rise from its low in March, at the current price of $54 per share, we believe NetApp stock (NASDAQ: NTAP) has further upside potential. NetApp stock has increased from $35 to $54 off the recent bottom, less than the S&P which increased by over 60% from its lows. Further, the stock is down more than 10% from its 2020 pre-Covid high of $61. We believe that NetApp’s stock could cross its pre-Covid high, rising over 15% from its current level, driven by expectations of rising demand and strong Q2 2021 results despite the pandemic. Our dashboard What Factors Drove -9% Change In NetApp Stock Between 2018 And Now? has the underlying numbers behind our thinking.
The stock price fall since 2018-end came due to a 9% drop in revenue from $5.9 billion in 2018 to $5.4 billion in 2020 (NTAP’s fiscal year ends in April). However, this was outweighed by a 14% decrease in the outstanding share count, which led to revenue-per-share (RPS) rising by 6%.
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NetApp’s P/S (price-to-sales) multiple dropped from 2.7x in 2018 to 2.6x by 2019 end, and has since further dropped to 2.2x. We believe that the company’s P/S ratio has the potential to rise in the near term on expectations of continuing demand growth and favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of coronavirus and the resulting lockdowns in early 2020 have seen a surge in online activity, due to a rise in new blogs and websites and has also led to a lot of businesses shifting online. NetApp operates in the cloud data services and data management segment, and thus the pandemic has actually helped NetApp’s business. The company posted Q2 2021 revenue of $1.42 billion, up from $1.37 billion for the same period last year. However, higher operating expenses saw operating income drop from $296 million to $182 million, but we believe that with online activity continuing to surge and the need for cloud storage rising by the day, NetApp will continue to see revenue growth in the near to medium term, causing profitability to rise.
We expect this to drive up the company’s P/S multiple, and believe that NetApp’s stock can rise around 15% from current levels, to cross its pre-Covid high of $61.
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