"At eight times forward earnings, the stock trades as if it were a dealer in industrial toxic sludge. You and I both know better, even if Mr. Market is too hyper to notice."

That's what I wrote about NetGear (NASDAQ:NTGR) last year at this time. And I was right, sort of. The stock was up roughly 11% over the past year, easily besting the S&P 500, which fell more than 20% over the same period.

But last year's tale of growth has now become a recovery story. Revenue fell 29% from last year, and non-GAAP earnings swung from a $0.41 per share gain to a $0.02-per-share loss. Gross margin fell to 29.6% from 33.2% in the year-ago quarter. Ouch. That 11% gain since last year is now all but lost in early morning trading.

For its part, management says the business is doing as well as can be expected. "Due to normal seasonality, the second quarter is generally the slowest quarter of our fiscal year," CEO Patrick Lo said in a press release. "Given this, we are pleased to achieve net revenue of $144.7 million, especially in light of the worldwide macroeconomic downturn, while at the same time reducing our 'on-hand' and our distribution channels' inventory levels."

Lo makes a good point: NetGear's balance sheet is exceptionally strong. The company had $224.5 million of cash and equivalents and no debt on its books as of June 28, good for more than 43% of its present market value.

NetGear is also diversifying. Sure, Cisco (NASDAQ:CSCO) and 3Com (NASDAQ:COMS) will always be its core competitors in personal wireless devices. But NetGear is also helping users to measure Internet consumption, and moving into selling higher-end entertainment devices. Its EVA9150 player competes with Apple's (NASDAQ:AAPL) Apple TV, Western Digital's (NYSE:WDC) WD TV, and the Roku Player, which connects users to Netflix's (NASDAQ:NFLX) on-demand options. NetGear is positioning itself to grab a warm slice of Web video pie, an opportunity that Wired's Chris Anderson expects to be explosive in the coming years.

In a market that can't make up its mind, positioning for growth is almost as good as proven growth. NetGear hasn't proven anything yet, but it's getting closer each day.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is still getting used to speaking Russian.