While NETGEAR, Inc. (NASDAQ:NTGR) might not have the largest market cap around , it received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. The company is now trading at yearly-high levels following the recent surge in its share price. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today we will analyse the most recent data on NETGEAR’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for NETGEAR

What's The Opportunity In NETGEAR?

According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 32.11x is currently well-above the industry average of 24.03x, meaning that it is trading at a more expensive price relative to its peers. In addition to this, it seems like NETGEAR’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will NETGEAR generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a relatively muted revenue growth of 1.3% expected in the upcoming year, short term growth doesn’t seem like a key driver for a buy decision for NETGEAR.

What This Means For You

Are you a shareholder? NTGR’s future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe NTGR should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on NTGR for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into NETGEAR, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with NETGEAR (including 1 which doesn't sit too well with us).

If you are no longer interested in NETGEAR, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.