The past six months have been a windfall for NetApp’s shareholders. The company’s stock price has jumped 88.1%, hitting $198.42 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy NTAP? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Is NTAP a Good Business?
Founded in 1992 as a pioneer in networked storage technology, NetApp (NASDAQ:NTAP) provides data storage and management solutions that help organizations store, protect, and optimize their data across on-premises data centers and public clouds.
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that sheds light on NetApp’s demand characteristics. This metric is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period - different from reported revenue, which must be recognized in pieces over the length of a contract.
NetApp’s billings punched in at $2.06 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 10.4%. This performance was impressive, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
NetApp’s EPS grew at 15.5% compounded annual growth rate over the last five years, higher than its 4.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
NetApp has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 20.6% over the last five years.
Final Judgment
These are just a few reasons NetApp is a high-quality business worth owning, and with the recent rally, the stock trades at 19.8× forward P/E (or $198.42 per share). Is now the time to buy despite the apparent froth? See for yourself in our full research report, it’s free.
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