When Will Netgear Get It Together?

There always seems to be something bothering Netgear investors when quarterly earnings roll around.

Three quarters ago, for example, the small-cap networking company beat revenue estimates but missed on earnings, largely thanks to a higher-than-expected tax bill after revenue and earnings shifted to the Americas.

Then in April, Netgear shares touched a fresh 52-week-low after the company lowered full-year revenue guidance following unexpected delays in rolling out its new ReadyNAS line of network attached storage devices.

Finally, by July, the stock had rebounded nicely from those lows and things seemed to be looking up after the company beat expectations on both revenue and earnings. However, Netgear once again plunged after investors were disappointed with its forward guidance.

Here's what happened Friday 
Alas, Netgear stock plummeted for the fourth quarter in a row following its earnings report Friday, and it's safe to say investors are starting to get impatient.

To its credit, Netgear's latest results seemed fairly solid on the surface. Quarterly revenue rose 14.8% year over year to $361.9 million, beating analysts' expectations for sales of just $354.06 million, while adjusted net income of $0.58 per share was in line with estimates.

However, Netgear also said it expects fourth-quarter net revenue in the range of $340 million to $355 million, or well below the $368.67 million analysts had hoped for. What's more, Netgear said it expects non-GAAP operating margin to remain in the range of 9.5% to 10.5%, or significantly lower than 11.5% during the same year-ago period, as revenue has continued to shift further toward its lower-margin service provider unit. For those of you keeping track, that's where Netgear is including revenue gained from the AirCard business it acquired from Sierra Wireless earlier this year.

Finally, Netgear says its commercial business unit underperformed last quarter, as demand for its enterprise storage products was weaker than expected. Still, despite continued weakness in Europe, the Middle East, and Africa, Netgear's core retail business unit has remained strong, as consumers continue to upgrade their wireless network hardware to the latest approved AC standards.

So why is Netgear expecting the sequential drop in revenue going forward? According to management on the subsequent earnings conference call, though retail and commercial business units should see increased sales, they're expecting service provider revenue to drop in Q4 as part of regular seasonality.

The multimillion-dollar question
That's all well and good, but I know I'm not alone in asking the question: When will Netgear finally put all the pieces together and report an all-around decent quarter?

Honestly, I don't know. To be fair, though, I don't think anyone really knows, including Netgear. After all, EMEA regional economic weakness can't last forever, but even then Netgear needs to ensure it can continue effectively competing in the commercial segment. If it fixes that, and assuming service provider revenue continues to grow, investors will probably demand it find a way to increase margins across the board.

But what I do know is that, despite the stock's current knack for negative volatility, there's nothing particularly alarming about Netgear's results. After all, we're still talking about a company that not only boasts solidly profitable operations in spite of its weakness, but also one that enjoys significant long-term growth opportunities in its industry going forward.

What's more, I still think the stock looks cheap at just 16.3 times last year's earnings and under 11 times next year's estimates. Back out Netgear's $301.4 million in cash -- which amounts to more than a quarter of its total market capitalization -- and Netgear's trailing and forward earnings multiples drop to under 12 and 8, respectively. Let it suffice to say, then, the market certainly seems to have priced plenty of pessimism into Netgear's shares.

So while the market may not like Netgear as it stands, I have no problem arguing that's not a bad thing for patient long-term investors willing to take advantage of the pullback.

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The article When Will Netgear Get It Together? originally appeared on Fool.com.

Fool contributor Steve Symington owns shares of Apple and Netgear. The Motley Fool recommends Amazon.com, Apple, Facebook, Google, and Netgear and owns shares of Amazon.com, Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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