Shares of Netgear (NTGR 0.16%) touched a fresh 52-week-low during Tuesday's intraday trading after the company released select preliminary results for the first quarter of 2013.
When all's said and done, the company now expects net revenue for the first quarter to come in around $290 million to $295 million, just meeting the lower end of existing guidance, which called for a revenue range of $290 million to $305 million.
If that weren't bad enough, Netgear also told investors to expect non-GAAP operating margin for Q1 of 9.5% to 10%, which is lower than its previously estimated range of 11% to 12%. As a result, non-GAAP earnings per diluted share for the first quarter should be between $0.45 and $0.50.
When I wrote about Netgear's gut-wrenching 12% fall after its lower-than-expected fourth quarter earnings, the company had partly blamed that disappointment on higher-than-expected taxes from a shift in revenue and profits to the Americas -- not exactly a deal-breaker, but frustrating nonetheless.
So what happened this time?
ReadyNAS storage... not so ready
According to Netgear CEO Patrick Lo, the company's weak results were caused by "difficulty in the transitioning of [the] ReadyNAS line, which caused shipments to be lower than demand from .. channel partners." Lo went on to reassure investors, saying "We are planning for a full recovery of supply for the second quarter onward."
Fair enough. I suppose there's a silver lining that the problem wasn't Netgear seeing lower demand for its products, but rather that it wasn't able to ship as much of them as it needed to.
Let it grow
With a market cap right around $1 billion, we also should keep in mind Netgear is still a relatively small company. As a result, it's bound to experience some growing pains here and there. After all, Netgear did grow its revenue by more than 40% over the past three years, all while increasing its earnings per share by nearly 58%.
Even more impressive: Netgear now trades at just 12.7 times trailing earnings, and a mouth-watering 9.3 times forward estimates. That's not too shabby for a company which claims it can increase revenue another 58% to $2 billion by the end of 2014.
In fact, on a price-to-earnings basis, Netgear now sits at levels similar to competitor and networking behemoth Cisco Systems (CSCO 0.95%), which currently trades at 12.2 times trailing earnings and 10 times forward estimates. And Cisco, for its part, only forecast year-over-year revenue growth this quarter of 4% to 6%.
Then again, with a market cap of $113 billion, the much-more-stable Cisco also maintains operating margins just shy of 23% and pays a 3.2% dividend.
Meanwhile, Netgear has plenty of work to do in order to convince investors it can actually deliver on its $2 billion revenue promise by the end of next year. As I wrote in February, in addition to the continued growth of its core "smart home" products, Netgear's recent $138 million acquisition of Sierra Wireless' AirCard business should help cover a large portion of that gap, given the rapidly growing market for 4G LTE fixed mobile data, voice, and media gateways.
Foolish final thought
In any case, despite its missteps during the past two quarters, Netgear remains solidly profitable with plenty of cash and no debt on its balance sheet. What's more, the company is still growing revenue, and the issues it's having are by no means permanent. To the contrary, Netgear's long-term story remains firmly intact, and I'm convinced the stock is a screaming buy at today's price.