NETGEAR Stock Jumps 15% in Six Months: Will This Uptrend Last?

NETGEAR Inc.’s NTGR share price has appreciated 15% in the past six months, outperforming the Computer Networks Industry’s growth of 6.4%. Over the same time frame, the broader Zacks Computer and Technology and the S&P 500 composite have registered declines of  3.2% and 2.6%, respectively. The stock has been steadily gaining traction over the past few months, signaling renewed investor confidence.Price PerformanceImage Source: Zacks Investment ResearchNTGR stock closed the last trading session at $29.12, closer to its 52-week high of $31.55. Now the question arises, where will the stock head from here? Will it breach the 52-week high or witness a pullback? Should investors book a profit and make an exit or stay invested?Let us deep dive into NTGR’s pros and cons, and ascertain investment worthiness.NTGR’s Growth FactorsStrength in NETGEAR for Business (“NFB”) segment and recurring revenues bode well. Driven by ongoing momentum for ProAV managed switch products, revenues from NFB segment jumped 15.4% to $79.2 million in the last reported quarter. The NFB business delivered a 46.3% gross margin, up 440 basis points year over year.Going ahead, the company continues to expect end-user demand for the ProAV line of managed switches to remain strong. However, NETGEAR highlighted that it continues to witness supply constraints around certain managed switch products but expects these to ease in the second quarter and improve in the remaining half of the year.NETGEAR generated $8.7 million of recurring revenues in the reported quarter. It now has 559,000 recurring subscribers. The company generated $35 million of recurring revenues in 2024. Increasing subscriber revenues is essential for long-term financial stability and cash flow generation.NETGEAR’s transformation strategy is gaining traction. The 2024 strategic realignment was followed by a January 2025 reorganization. The 2024 strategic realignment resulted in annual cost savings of $20 million, creating room for reinvestment in core growth areas. Moreover, NETGEAR completed a successful destocking plan across CHP and NFB, leading to a $86 million reduction in inventory in 2024. This is expected to help the company align sell-in with sell-through with channel partners, thereby increasing revenue predictability.NETGEAR is confident to retain a competitive edge in new product introductions, based on the Wi-Fi 6 and 7 standards. In September 2024, NTGR launched the Nighthawk M7 Pro Mobile Hotspot. Powered by the Qualcomm Snapdragon SDX75 chipset and operating on AT&T’s 5G network, the M7 Pro offers an exceptional Internet experience, combining advanced WiFi 7 technology with 5G speeds. In August 2024, NETGEAR unveiled the WBE710 Insight Manageable Tri-band WiFi 7 Access Point solution. This solution is designed to boost data throughput across multiple bands to lower network congestion. Going ahead, the company remains focused on executing the ‘good-better-best' strategy for its Mobile segment with new product launches scheduled for later in the year.NTGR’s Focus on Capital AllocationThe focus on the return of capital to shareholders is positive. NETGEAR repurchased 254,000 shares worth $7.5 million in the quarter under review. In 2024, NETGEAR bought back $33.6 million worth of shares. The company has 3.1 million shares left under its existing authorization. The company’s strong cash profile with $392 million in cash/short-term investments provides ample liquidity for continued buybacks, R&D and strategic investments.NTGR’s Compelling ValuationNTGR stock is trading at a discount with a trailing 12-month price/book multiple of 1.57 compared with the industry’s multiple of 5.25.Image Source: Zacks Investment ResearchChallenges Remain for NTGRRevenue challenges persist. In the first quarter, NETGEAR generated net revenues of $162.1 million, down 1.5% on a year-over-year basis. The decline highlights persistent headwinds in certain business units, particularly Mobile.Mobile segment revenues of $21.5 million were down 23.5% year over year and 10.9% sequentially. Even though the management cited better-than-expected end-user demand, the decline could also imply waning product competitiveness. The lack of near-term catalysts, with new product introductions only expected later in 2025, may limit near-term recovery in this segment.Despite improving margin performance, NTGR remains unprofitable. In the last reported quarter, non-GAAP operating loss was $2.6 million against operating income of $16 million in the year ago quarter. For the current quarter, gross margin is expected to be the same as the first quarter of 2025 or decrease slightly. GAAP operating margin is forecasted to be between (10.4)% and (7.4)%. Non-GAAP operating margin is estimated in the band of (6.5)-(3.5)%. The implied drop-off in profitability could spook investors, especially since revenues are guided to be between $155 million and $170 million.NETGEAR’s highly seasonal business can cause volatility in cash flow, while an uncertain macro environment could further strain its margins.How Should Investors Play NTGR Stock?Retaining NTGR appears to be prudent for now, as reflected by its Zacks Rank #3 (Hold). Momentum in NFB segment, increasing recurring revenues and strategic realignment remain key positives. A strong cash position and ongoing share repurchases bode well. Despite near-term revenue and margin pressures, NTGR’s valuation remains compelling.Stocks to ConsiderSome better-ranked stocks within the broader tech space are Intuit Inc. INTU, CyberArk Software Ltd. CYBR and Clearfield, Inc CLFD, presently sporting a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for INTU’s fiscal 2025 EPS is pegged at $19.98, unchanged in the past seven days. Intuit’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 12.2%. INTU stock price has appreciated 21.2% in the past year.The Zacks Consensus Estimate for CYBR’s 2025 bottom line is pegged at $3.79, unchanged in the past seven days. CYBR’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 44.3%. CyberArk Software’s shares have gained 8% in the past month.The Zacks Consensus Estimate for CLFD’s fiscal 2025 EPS is pegged at 19 cents, unchanged in the past seven days. Clearfield’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 90.5%. CLFD stock has gained 22.9% in the past month.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Intuit Inc. (INTU): Free Stock Analysis Report NETGEAR, Inc. (NTGR): Free Stock Analysis Report CyberArk Software Ltd. (CYBR): Free Stock Analysis Report Clearfield, Inc. (CLFD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks