NetApp Inc

NetApp Inc (NASDAQ-GS: NTAP) is a provider of services, systems, and software to be used for storing and managing customer data.

Investment Highlights – NetApp Inc – Expensive at USD 65.70

• Despite the improved revenue, financial performance was impacted by higher operating expenses.
• In the last one month, the Company delivered a negative return of ~0.15% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, Price/Earnings multiple of the NetApp Inc is currently higher as compared to the corresponding multiple of the Computers, Phones and Household Electronics industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 59 level), which means the stock price could decline in the short term.

Key Risks

• The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce financial performance as well.
• Any change in regulations and government policies could affect the overall business of the Company.

Financial Highlights – Q2 & H1 FY2021 (30 October 2020) (released on 1 December 2020)

(Source: Quarterly Report, Company Website)

• In the second quarter of the financial year 2021, the net revenue surged by 3% on Year-over-Year basis to $1.42 billion.
• The Company’s public cloud services delivered an increase in annualized revenue run rate of 200% and All-flash array delivered a 15% increase in annualized net revenue run rate.
• The Company expanded hybrid cloud customer value proposition and delivered cash dividends of $107 million to shareholders.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in the second quarter and the first half of the financial year 2021. Despite the higher revenue, the bottom-line performance declined, with lower profitability margins. NTAP expects the net revenue for the third quarter to be in between $1.34 billion and 1.49 billion, with EPS to be ranging from $0.67 to $0.75 on GAAP basis and $0.94 to $1.02 on a non-GAAP basis. NetApp operations were impacted by the outbreak of covid-19 pandemic and have been focusing on strengthening its balance sheet and reducing its costs. Presently, the company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of USD 34.66 and USD 67.63, respectively.

Based on the factors as highlighted above, we believe the stock of NetApp Inc is “Expensive” at the closing price of USD 65.70 (as on 26 January 2021), with support from few catalysts needs to be evaluated at a later stage such as an increase in recurring revenue and annualized revenue run rate.

Cheetah Mobile Inc

Cheetah Mobile Inc (NYSE: CMCM) is a Software & Computer Services Company with a strong vision. The Company offers mobile utility products, live streaming product and value-added services.

Investment Highlights – Cheetah Mobile Inc – Expensive at USD 2.19

• In the third quarter of the financial year 2020, the Company has generated significantly lower revenue and profitability.
• In the last six months, the Company delivered a negative return of ~8.75% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, Price/Cash Flow multiple of the Cheetah Mobile Inc is currently higher as compared to the corresponding multiple of the Software & IT Services industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 56 level), which means the stock price could decline in the short term.

Key Risks

• Failure in cybersecurity and a critical data breach could hamper the operations as well as the reputation of the company.
• The Company’s operations are impacted by risks related to market trends, political change and change in the regulatory authority.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 24 November 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter of the financial year 2020, due to lower revenue generated by all businesses, the total revenue declined to RMB 365,098 thousand against last year comparatives.
• Despite the reduction in operating expenses for the period, the Company reported an operating loss of RMB 126,035 thousand, due to significantly lower revenue.
• The Company managed to increased cash balance to RMB 1,089,268 thousand as on 30 September 2020 (31 December 2019: RMB 983,004 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown a significant decline in financial performance in the third quarter of the financial year 2020. Both the top-line and the bottom-line performance declined, with lower profitability margins. The Company managed to improve liquidity position, while reported a poor balance sheet. CMCM expects revenue for the fourth quarter to be in between RMB 230 million and RMB 280 million. The Company believes that its operations will not be significantly disrupted by covid-19 in the Q4 FY2020. Presently, the company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of USD 1.09 and USD 2.98, respectively.

Based on the factors as highlighted above, we believe the stock of Cheetah Mobile Inc is “Expensive” at the closing price of USD 2.19 (as on 26 January 2021), with support from few catalysts needs to be evaluated at a later stage such as an increase in liquidity position.

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.