Network Appliance (NTAP) is a buy
5-24-07: Memorial Day weekend is finally here. Most of us will be heading to the lake, camping or perhaps visit families to mark the start of summer. Whatever you decide to do this long weekend, we wish you a safe holiday. We don’t expect to see much action tomorrow as far as the stock market. Today’s sell off is nothing to be concern about. The stock market has been on a tear; a temporary 87 point drop in the DOW is probably healthy. Take this opportunity to look for bargains. Check out Network Appliance Inc. (NTAP). NTAP appears attractive at current level.
NTAP is down 16 percent today because the company issued a lower than expected guidance. Currently trading at ~$31 per share, we believed this is an opportunity. This company has great products and solutions to help Enterprise manage their storage. For example, their network storage management software is top notch and one of the best solutions available. Storage management is a huge market dominated by large firms such as IBM, SUNW and EMC to name a few. Despite tough competitions, NTAP has been able to grow their business at a respectable rate. We do not believe the lower guidance means Enterprise is cutting back their technology investment. The problem with NTAP has to do with expectation. The stock was priced for perfection. Business fundumental remains strong and still intact.
Although NTAP tumbled today, this stock is still quite expensive when you compare the P/E ratio with its peers. It is still about 2X higher. This suggests the market is still expecting a lot from NTAP. Keep that in mind if you are considering NTAP. If NTAP fails to exceed expectation, the stock will surely tumble back to the low $20s. We however doubt NTAP will go much lower as their growth rate remains strong. We’ll keep an eye on this stock in the next few days. Our point of entry for NTAP is currently below $30 per share, ideally $28 per share.
Have a safe Memorial Day weekend everyone!
Comments
Has your opinion on NTAP changed since you wrote this article? Is below $30 still a good entry point?
Posted by: Adam | June 29, 2007 06:16 AM
Hi Adam,
Our opinion regarding NTAP remains the same. We believed the stock is priced attractively below $30 per share. Thus, we have started to accumulate some shares of NTAP.
-ibooyah
Posted by: iboyah | June 29, 2007 06:33 AM
NTAP is now approaching $28/share. Do you think there are lower entry points, say, $25? Or should I load up now?
Posted by: Arsenic | July 3, 2007 10:50 AM
Hello Arsenic,
Our opinion is NTAP's support level appears to be in the upper $20 range, around $28 and $29. Unless there's some really bad news or the market just tanks, we doubt it will go much lower. One might be able to get it at $27, but we doubt it will hit $25. In our view, buying incrementally would be a better strategy. Loading up now would be too risky.
Good luck.
Posted by: ibooyah | July 3, 2007 01:32 PM
Thanks for your advice on NTAP. I bought in the range of when you suggested and now it's around $32/share. I hate to be too greedy since my gain is around 10%. Should I continue to accumulate , hold it until around $33 or take my happy return? I appreciate your postings as they are well thought out and insightful.
Posted by: Adam | July 19, 2007 08:00 AM
Hi Adam,
Our view is NTAP at $32 is still undervalued, but we do not plan to accumulate more at this level. Our plan is to hold as we believed earnings will be positive. Good Luck.
Posted by: ibooyah | July 19, 2007 08:55 AM
ok...NTAP dropped to $23 this morning. What's your take right now? Does the fundamental change?
Posted by: Shen | August 3, 2007 04:26 AM
What's your take on NTAP restatement of the year earnings? The stock is getting beaten up pretty good today (at around $24).
I held off getting in at $28 and now I'm glad I did.
Posted by: Adam | August 3, 2007 06:37 AM
This is a shocker. Not too often does a company come out with weak outlook one after another. NTAP appears to be hurting quite bad. Lowering outlook by this degree is indeed concerning. Unfortunately, we might see further decline in NTAP's share in the short term. It could go as low as $21 before stabilizing.
Interesting Citigroup upgraded the stock this morning while others dowgraded.
Good luck all..
Posted by: ibooyah | August 3, 2007 08:15 AM