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Better Buy: EMC or NetApp?

By Motley Fool Staff | More Articles
December 28, 2009 | Comments (11)

In a new Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.

Today's matchup is EMC (NYSE: EMC  ) vs. NetApp (Nasdaq: NTAP  ) . Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:

 

Factor

EMC

NetApp

Cheapness

(P/E ratio)

37.2

81.3

Growth

(5-year growth rate)

15.0%

-3.7%

Operations

(net margin %)

7.19%

4.36%

Balance Sheet

(debt/equity ratio)

.21

.51

CAPS Rating

(scale of 1 to 5 stars)
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Round 1: Cheapness

Advantage: EMC. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).

Round 2: Growth

Advantage: EMC. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously-optimistic Wall Street projections in perspective.

Round 3: Operations

Advantage: EMC. Net margin percentage shows how efficiently a company turns revenue into profit. The more similar the business models, the more relevant the comparison.

Round 4: Balance sheet

Advantage: EMC. As with net margins, the debt to capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).

Round 5: CAPS rating

Advantage: EMC. A company’s CAPS rating is our community’s opinion of the stock. You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to our CAPS area.

Each of these five rankings need more context -- like, how these companies stack up against key competitors such as Hewlett-Packard (NYSE: HPQ  ) and Western Digital (NYSE: WDC  ) . But these basic numbers suggest that EMC is a better buy. What do you think? Let us know in the comments section below.

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No individual person selected the stocks in this article, so there is no author to disclose an interest in them. Since this article was automatically generated by identifying the stocks loved both by the CAPS community and by buyers in today’s market, it is possible that Motley Fool personnel (and even The Motley Fool itself, through our Million Dollar Portfolio, Motley Fool Pro, and Ready Made Millionaire services), have positions in these stocks. We thought you'd like to know that. You can learn more about The Motley Fool’s disclosure policy here.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 28, 2009, at 2:18 PM, Fool wrote:

    Netapp sucks

  • Report this Comment On December 28, 2009, at 2:26 PM, Khax wrote:

    I lost my money to bet on EMC. Definitly NTAP is make money for stock holders not EMC. EMC is make money for those CEO, CFO, COO etc.. Don't invest in EMC, you will lost your money.

  • Report this Comment On December 28, 2009, at 2:44 PM, storageguru09 wrote:

    Looks to me this is an EMC backed propaganta, i always made money on NTAP. You bet it.

  • Report this Comment On December 28, 2009, at 4:28 PM, JH13 wrote:

    Hmmm, let's look at history;

    For the last 1 Month

    - Nasdaq up ~7%

    - NTAP up ~11%

    - EMC up ~6.5%

    For the last 3 Months

    - Nasdaq up ~7.5%

    - NTAP up ~30%

    - EMC up ~4.5%

    For the last 6 Months

    - Nasdaq up ~24%

    - NTAP up ~72%

    - EMC up ~33%

    For the last 1 Year

    - Nasdaq up ~53%

    - NTAP up ~170%

    - EMC up ~75%

    For the last 2 Years

    - Nasdaq up ~(15)%

    - NTAP up ~35%

    - EMC up ~(3)%

    For the last 5 Years

    - Nasdaq up ~3%

    - NTAP up ~2%

    - EMC up ~20%

    For the last 10 Years to the DotCom bust

    - Nasdaq up ~(40)%

    - NTAP up ~(10)%

    - EMC up ~(70)%

    For the last 15 Years

    - Nasdaq up ~200%

    - NTAP up ~2000%

    - EMC up ~800%

    Looks like they've outperformed EMC almost every time. I've been hearing the analyst say how wonderful EMC was and how they were going to bury NTAP but it just hasn't happened has it. EMC made most of their money selling mainframe disk into a shrinking but profitable market while NTAP made theirs selling into the growing Internet and Unix markets, yes they've both grown into more markets now but you have to look at where their strengths are. I don't know how NTAP will do under the new leadership and it bothers me a bit that he's so open to the company being bought out but we'll see. I've had the stock for about 15 years now because I've purchased and believed in their product, the 2000% return feels pretty good too.

  • Report this Comment On December 28, 2009, at 4:55 PM, Fool wrote:

    EMC has traded in a relatively narrow range for the past 9 years. As a stockholder for all of those years, I'm still waiting for a payoff from all their acquisitions: McData, RSA & VM Ware! I think it's time for Tucci to go!

    Frustrated

  • Report this Comment On December 28, 2009, at 6:39 PM, DrMrLove wrote:

    More BS EMC propaganda, indeed. It's easy to be optimistic about a bottom-feeder stock like EMC. Profits please?

  • Report this Comment On December 28, 2009, at 8:13 PM, JaypoTech wrote:

    VMware was the greatest acquisition in recent history, much better than the $$$ wasted on Legato and RSA. It was tragic when Diane Greene was replaced by a Microsoft guy, where is their virtualization product headed?

    It's also funny how that happened shortly after people were figuring out that NetApp's product integrate more tightly with VMware over EMC's. I believe she was even scolded by EMC management for admitting that NetApp was the preferred storage platform for VMware (NFS, look it up).

    I would like to see comparison numbers posted without VMware's profits built into the mix.

  • Report this Comment On December 30, 2009, at 10:21 AM, NTAP2NDTIER wrote:

    Just my 2 cents on the topic....... NTAP is a 2nd tier storage company who sells solutions that are just good enough just like the products.Not sure I want to buy a stock in a company that will not be around in the long haul.

  • Report this Comment On December 31, 2009, at 1:31 PM, Fool wrote:

    Ngrgrgrgrgrgrgrgrgrg

  • Report this Comment On January 13, 2010, at 8:36 PM, Fool wrote:

    Ntap is 1st,2nd and 3rd tier. I know, I m a techie

  • Report this Comment On January 14, 2010, at 11:26 PM, FoolishEGAD wrote:

    Yes yes, NetApp has a tier 1 offering. Which is why their revenues in the Enterprise space are down 47%.

    I am curious to know what you think NetApp makes that would be considered (by a techie) to be Tier 1... And if they're making it, why aren't they selling it?

    I'd say for 2010 EMC is probably a slightly better conservative buy than NetApp. The big boys have EMC valued well over $20/share and most have NTAP on HOLD mode...

    My2

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