Last update on 2024-06-07

Netgear (NTGR) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Netgear (NTGR): Piotroski F-Score reveals company's financial position strength for 2023 (Score: 4/9). Keywords: Netgear, Piotroski Score, financial analysis, 2023, stocks.

Short Analysis - Piotroski Score: 4

We're running Netgear (NTGR) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is a measure that helps identify promising investment stocks by examining nine criteria related to profitability, liquidity, and operating efficiency. Netgear (NTGR) received a Piotroski Score of 4 out of 9 in the latest analysis. Key findings include negative net income, positive operating cash flow greater than net income, declining return on assets, increasing leverage, growing current ratio, rising share dilution, improving gross margin, and declining asset turnover ratio.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski Score of 4, Netgear (NTGR) shows some strengths, such as cash flow and gross margin improvement, but also significant weaknesses, particularly in profitability and efficiency metrics. Its increasing debt and share dilution also pose concerns. Therefore, it may not be the strongest candidate for investment right now, especially compared to industry peers. It's advisable to consider more stable and financially sound alternatives for safer investments.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Netgear (NTGR)

Company has a positive net income?

Net income refers to a company's total earnings (or profit) over a specific period. In the Piotroski score, positive net income indicates profitability.

In 2023, Netgear reported a net income of -$104.767 million. This is a negative figure, indicating that the company did not make a profit in that year. This is concerning, especially considering the historical data provided. Over the past 20 years, there have been fluctuations, but it is notable that Netgear's net income has only been negative three times in this span (2015, 2018, and 2022) aside from 2023. The negative trend in recent years (especially significant losses in 2022 and 2023) suggests financial struggles and raises a red flag. Therefore, the Piotroski score for net income is 0.

Company has a positive cash flow?

The Cash Flow from Operations (CFO) criterion evaluates whether a company is generating positive cash flow from its core business activities. A positive CFO indicates that the company is able to maintain and expand operations through its own earnings, a crucial indicator of financial health.

Based on the provided financial data, Netgear's cash flow from operations for the year 2023 is $56,853,000, which is indeed positive. Hence, this criterion is satisfied, adding 1 point to the Piotroski Score. Observing the trend over the last 20 years, there have been fluctuations. Notable positive spikes occurred in 2020 ($181,150,000) and 2014 ($108,964,000), whereas some years have shown negative cash flow, particularly 2018 (-$103,211,000). This positive result for 2023, especially following some significant negative years, reflects a healthy trend upward and can be interpreted as a good sign of stabilizing operations and improving financial health. Consequently, NTGR garners a point in this evaluation.

Return on Assets (ROA) are growing?

The criterion analyzes the change in the Return on Assets (ROA) from one year to the next, indicating whether ROA is increasing or decreasing.

For Netgear (NTGR), the ROA was -0.0658 in 2022 and declined further to -0.1122 in 2023. This decrease indicates a worsening performance in using assets to generate profits. In the historical context, Netgear's operating cash flow values have seen significant fluctuations over the past 20 years. Compared to the industry median ROA, which has remained consistently positive and stable, Netgear's performance stands markedly lower. Additionally, it’s crucial to note that the industry median ROA in 2023 was 0.3903, indicating that Netgear is performing substantially below its peers.

Operating Cashflow are higher than Netincome?

The criterion examines whether the Operating Cash Flow (OCF) exceeds Net Income.

For Netgear (NTGR) in 2023, the Operating Cash Flow was $56.85 million, while the Net Income was negative at -$104.77 million. This indicates that the company's operations are generating more cash than what is reflected as net income, leading to a +1 score according to the Piotroski analysis. The positive OCF despite a negative net income suggests strong liquidity conditions and potential non-cash charges likely impacting net income adversely.

Liquidity of Netgear (NTGR)

Leverage is declining?

Change in leverage measures if the company's debt load relative to its equity has increased or decreased, indicating financial health or risk.

In 2023, Netgear's leverage ratio increased from 0.0334 in 2022 to 0.0351. Over the last 20 years, leverage started at 0, hovered steadily until 2019, and saw minor increments reaching 0.0351 in 2023. Increasing leverage suggests rising debt relative to equity, adding financial risk. Negative impact, set it to 0.

Current Ratio is growing?

The current ratio measures a company's ability to pay short-term obligations with its short-term assets. A higher current ratio indicates better liquidity.

Netgear's current ratio increased from 2.4114 in 2022 to 2.8295 in 2023, which is a positive trend. This increase in the current ratio means that Netgear is in a better position to cover its short-term liabilities with its short-term assets in 2023 compared to 2022. Adding 1 point for this improvement, it is also noteworthy that the company's current ratio has largely remained above the industry median in the past 20 years, suggesting a consistently strong liquidity position.

Number of shares not diluted?

Change in Shares Outstanding signifies the number of shares that a company has issued and that are currently held by shareholders. If outstanding shares decrease, it often indicates share buybacks, which can be a sign of financial health. An increase could point to equity financing, which might dilute existing shareholders' equity.

In 2022, Netgear had 29,007,000 outstanding shares, which increased to 29,355,000 in 2023. This represents an increase of 348,000 shares. The increase in outstanding shares suggests that Netgear may have engaged in equity financing, potentially diluting existing shareholders' equity. Therefore, for the Piotroski F-score, we assign it a score of 0 in this criterion.

Operating of Netgear (NTGR)

Cross Margin is growing?

Gross Margin is a key indicator of a company's financial health as it reflects the core profitability of the company's operations by measuring the revenue remaining after accounting for the cost of goods sold. An increase in gross margin indicates improved efficiency or cost control.

Netgear's gross margin for 2023 is 0.3364, up from 0.2687 in 2022, which signifies an increase. Adding 1 point. This reflects a strong recovery in the company's core efficiency and cost management capabilities. Historically, over the last 20 years, NTGR's gross margin has shown fluctuations, but the rise in 2023 sets it above its decades-long median. However, it's worth noting that NTGR's gross margin, even at its improved rate, remains below the industry median, which stands at 0.3903 for 2023, indicating there is competitive room for further improvement.

Asset Turnover Ratio is growing?

Asset Turnover is crucial as it indicates how efficiently a company utilizes its assets to generate revenue. Higher ratios reflect better performance.

Comparing 2022's Asset Turnover of 0.8888 with 2023's 0.7936, it has decreased. Thus, for Piotroski's analysis, we'd assign 0 points here. Historically, Netgear's Asset Turnover has shown a downward trend since 2003, when it stood at 2.002. The decline signifies a potential inefficiency in asset use to drive revenue. In 2023, the figure is the lowest in 20 years, reflecting a notable inefficiency compared to earlier years.