It has been quite a while since I've found a good old-fashioned, potentially investable net-net, which is a company trading below net current asset value. That fishing hole in the underbelly of deep value has been devoid of keepers for quite some time, but earlier this week, I got a bite.
Netgear (NTGR) , perhaps best known for its Wi-Fi routers, has had a rough start to 2023, with its shares down 24% year to date. Much of that damage was done in late April, when the company reported lackluster first-quarter results. Netgear missed on both bottom-line results (a 19-cent loss versus a 10-cent loss consensus) and revenue ($181 million versus $194 million consensus). Shares fell 14% in reaction.
Netgear may not be much to look at in terms of earnings as the company has lost money in five out of the last six quarters. However, the balance sheet is a different story. Netgear is awash in liquidity and ended the first quarter with $239 million, or $8.23 a share, in cash and short-term investments and no debt. Granted, cash is a fleeting asset when a company is losing money, but in this case, the level of liquidity renders Netgear's runway to be a potentially long one.
Netgear is expected to return to profitability in 2024 and currently trades at 16x "consensus" earnings estimates of 87 cents a share. Word of warning, though -- just two analysts currently cover the company and much can go wrong when you put too much faith in the estimates.
Netgear currently trades at 0.94x net current asset value, or NCAV, which is calculated by subtracting total liabilities from current assets, then dividing that into market cap. In addition, Netgear trades at just 0.69x tangible book value per share.
Net-net land is a dumping ground for failing or failed companies, but occasionally you can identify a diamond in the rough (or cigar butt with a few puffs left). Opportunities here have been very slim in recent years, and it's good to see a new possibility.