Summary
Netgear has truly struggled to grow its revenue in recent years, but the firm has done well to generate profits and strong cash flows.
This creates an interesting prospect that is not without its risks and that can be deceiving at first sight.
But a closer look reveals that shares are fundamentally attractive and might warrant some nice upside in the long run.
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Ethan Miller/Getty Images News Networking, security, and other related things are necessary in the modern era of technology. Without the ability to connect, communicate with, or be protected on, the various technologies that exist, those technologies in question are virtually useless. And one company that specializes in providing these types of capabilities is Netgear ( NTGR ). Had you looked only at the company’s revenue in recent years, you might think that it is a mediocre prospect for investors to consider. But upon a closer look, it becomes clear that the business is doing well to generate true value for its investors even as revenue has mostly stalled. So long as this current trend persists, the business will make for an interesting prospect. And this is made even more true when you consider just how cheap shares are today. A major solutions provider
Today, Netgear operates as a company that helps to connect networks and provide security for all those who might need such services. Operationally, the company is set up into two key segments. The first of these is the Connected Home segment. According to management, this particular segment centers around providing technologies that help consumers to the Internet using systems, routers, 4G and 5G products, smart devices, and more. Service offerings centered around security and privacy, technical support, and parental control functionality are also included in this segment. According to management, during the company’s 2021 fiscal year, this particular part of the business accounted for 73.1% of the firm’s overall revenue and 65.3% of its segment profits.
The other segment the company has is called the Small and Medium Business segment. This particular part of the business provides mostly small and medium businesses products such as Ethernet switches, enterprise-grade WiFi mesh systems that may or may not include cloud-managed or standalone access points, and Internet security appliances and services tied to that. The Pro AV Solutions the company offers also includes flexible switches that can be engineered for AV over IP. Based on the data provided, this particular segment accounted for 26.9% of the company’s overall revenue and 34.7% of its segment profits in the latest fiscal year. Author – SEC EDGAR Data If you were to judge Netgear only by its revenue path over the past few years, you would quickly discard the company as a mediocre prospect. After seeing revenue drop from $1.04 billion in 2017 to $998.8 million in 2019, it experienced a slight bump higher to $1.26 billion in 2020. Surprisingly, the continued move toward digitalization seems to have accelerated as a result of the COVID-19 pandemic, essentially front-loading some additional revenue for the business. But this increase in sales was short-lived. I say this, because, in 2021, sales dropped again, this time to $1.17 billion. This decline was driven by a 15.3% decrease in the Connected Home segment as more people went back to work and school. However, its Small and Medium Business segment fared surprisingly well, with revenue rising by 27% from 2020 to 2021. This makes sense in the context of what happened economically, with more businesses opening back up.
So what we have here is a company that has exhibited revenue in a fairly narrow range for an extended period of time. But, one thing we do have that looks great is the firm’s improvement in profits. Net income has been a bit lumpy, ranging from a low point of negative $9.2 million in 2018 to a high point of $58.3 million in 2020. In 2021, it came in at $49.4 million. This was not the surprise though. The real surprise related to cash flow. Operating cash flow was all over the map, with 2020 representing an all-time high of $181.2 million before seeing this turn negative to the tune of $4.6 million in 2021. However, if you adjust for changes in working capital, operating cash flow would have risen consistently between 2017 and 2020, rising from $54.4 million to $109.6 […]
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