Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Netgear, Inc. Is Finally Back on Track

Say it with me, Netgear  (NASDAQ: NTGR  ) shareholders: It's about time!

On Friday, Netgear stock jumped 4% following the company's fourth-quarter earnings announcement. That may not sound like much, but remember it's the first such positive reaction Netgear investors have enjoyed in more than a year -- previous reports had been hampered by everything from higher-than-expected taxes to unexpected delays for new products and disappointing forward guidance.

To be sure, while I still thought the stock looked cheap three months ago, I couldn't help but wonder when Netgear would be able to finally put all the pieces together for a decent quarter.

Here's how Netgear fared this time
In the fourth quarter, Netgear posted adjusted earnings of $0.59 per share on sales of $356.6 million. Meanwhile, analysts were only looking for for earnings and revenue of $0.55 per share and $348.91 million, respectively.

Curiously enough, however, Netgear also told investors to expect current quarter revenue of $335 million to $350 million, the midpoint of which sits slightly below expectations for Q1 sales of $345.82 million. What's more, operating margin should decrease from 10.6% in Q4 to around 9% to 10% in Q1.

To be fair, that top-line miss wasn't that far off the mark, so the market seems willing to forgive considering Netgear's past history of exceeding top-line expectations. And the margin decline, for its part, can be attributed to Netgear's lower-margin service provider business, which is where Netgear accounts for revenue gained from its recently acquired AirCard business and expected to continue comprising a higher mix of overall revenue going forward.

What's more, Netgear management says they're finally seeing growth in market demand from their European commercial and retail segments, and that Europe is now expected to be a positive contributor to growth in 2014.

Better yet, while Netgear's high-end 802.11 AC devices were a huge driver behind the company's successful holiday season in the U.S., Netgear CEO C.S. Lo claims the rebound in Europe is happening despite its 802.11 AC devices only arriving in the region a few weeks ago.

And though Netgear's revenue growth looked sluggish in 2013 (clocking in at just 7.7% year over year), Lo also reminded investors of several new products in the pipeline, including their new Ocuity wireless IP home security cameras and an innovative HDMI dongle meant for service provider customers to replace set-top boxes. What's more, Lo says, the current quarter will also see the nationwide launch of Netgear's first 4G LTE gateway at Sprint.

Foolish takeaway
Around this time last year management was reiterating their goal of reaching $2 billion in revenue by the end of 2014. It seems unlikely they'll reach that number in time given the extended weakness in Europe, but this quarter appears to be the inflection point investors have waited for. If Netgear can continue to keep it together and its new products deliver the growth they expect, the stock could prove an absolute bargain right now, trading around 12 times next year's estimated earnings.

Three stocks in this free report could ensure your comfy retirement
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Read/Post Comments (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2834742, ~/Articles/ArticleHandler.aspx, 8/29/2015 9:45:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Steve Symington

Technology and consumer goods specialist for the Fool. Steve looks for responsible businesses which positively shape our lives. Then, he invests accordingly. Enjoy his work? Connect with him on Twitter & Facebook so you don't miss a thing.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
NTGR $30.10 Up +0.19 +0.64%
Netgear CAPS Rating: ***