NEW YORK (TheStreet) -- More and more network enterprises are adopting the idea of "the cloud" and all of the service advantages it offers. As a result, demand is also growing for more complex infrastructures that can deliver on the promise of ease of computing and highly efficient analytics.
The challenge for investors appears to be distinguishing between software cloud companies such as database giant
or open source leader
. Then there are names that specialize in virtualization such as
However, investors continue to discount the strengths of
who is now in a neck-to-neck combat with
for storage supremacy -- a battle that is closer than many realize.
Although EMC is the leader in that all-important
, NetApp has more than demonstrated that it is a power in its own right and has distinguished itself not only from rivals ECM, but also traditional powers such as
-- from whom it has methodically captured market share. It has done this consistently by making data an area of focus and establishing an approach to storage architecture that appeals to a broad range of customers. So the question is, why has the stock been dropping?
Since reaching a high on the year of $46.80 on April 3, the stock is down 30% -- remarkably this comes on the heels of the company not only having reported better than expected third-quarter earnings results, but also offering an outlook in line with Wall Street expectations.
NetApp reported EPS of 32 cents or $120 million on revenue of $1.57 billion. It guided fourth-quarter projected revenue of $1.64 billion to $1.72 billion -- representing an increase of 21% from the previous year and EPS in the range of 38 to 43 cents. During the call, the company's CEO, Tom Georgens reminded investors of just how diligent the company is in acquiring new business. He said not only did the company add a record number of new customers, but its move toward virtualization resulted in a boost of storage demand.
Clearly, the company gets it and continues to show that it has its sights set on goals that are much bigger. For this reason, I have added it to my list of buys ahead of its fourth-quarter earnings report on Wednesday.
One of the metrics investors should watch will be revenue numbers. Here the company has consistently demonstrated broad geographical increases and growing unit shipments as well as growing sales of its high-end systems.
and to some extent names such as
continue to receive the lion's share of analysts' coverage, investors would be wise to also start paying attention to the message of NetApp's customers' spending: NetApp provides one of the most compelling value propositions in the industry for both private and public cloud deployments.
For as much as I love EMC as a company and stock, each day that goes by I grow more enamored with NetApp for the same reasons. However, as often is the case, it matters very little what I think as the market continues to show that EMC remains the favorite. The question is, can the market support two names equally within the sector?
That said, it is hard to see how NetApp isn't a bargain at today's prices. Data storage is a critical IT priority for many companies and should keep NetApp in excellent shape. Although EMC might now be the safer play, NetApp is a bit more interesting for risk-hungry investors as it shows considerably more growth potential.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.