Which data storage stock is a better buy?
NetApp, Inc. (NTAP) and Teradata Corporation (PMH) are two leading technology companies engaged in data storage. NTAP offers storage solutions and cloud services to manage and share data on premises and in private and public clouds around the world. Its storage solutions include specialized hardware, software and services that provide storage management for open network environments. In comparison, TDC focuses on providing a connected, multi-cloud data platform for enterprise analytics. Its Teradata Vantage data warehouse and analytics platform enables customers to integrate and simplify their multi-cloud data and analytics ecosystems.
The growing demand for high capacity data storage solutions in the digital age has spurred the growth of the data storage industry. The continued adoption of hybrid work models is expected to further drive industry growth. The data storage market is expected to grow at a pace 32.3% CAGR to $4.20 billion by 2026. Therefore, TDC and NTAP stand to benefit significantly.
While NTAP has lost 7.5% over the past three months, TDC has gained 6.3%. TDC is a clear winner with 6.5% gains over NTAP’s negative year-to-date returns. But which of these actions is a better choice now? Let’s find out.
On February 23, 2022, NTAP acquired Fylamynt, an innovative enterprise-backed CloudOps automation technology company that enables customers to securely build, run, manage and analyze workflows in no any cloud with little or no code. With the growing number of services and workflows, developing and maintaining integrations and automation is becoming expensive, complex, and time-consuming. Using Fylamynt’s innovative low-code, no-code technology for cloud automation enables DevOps and SREs to scale, optimize and sustain their cloud operations. at a fraction of the cost. The Fylamynt acquisition builds on NTAP’s momentum and investments to grow the Spot by NetApp portfolio of leading CloudOps multi-cloud infrastructure management services.
On February 10, 2022, TDC announced the successful results of one of the largest-scale cloud analytics tests ever undertaken in the industry, helping enterprise customers run their complex analytics workloads on a single system in the cloud on an unprecedented scale. As accelerated adoption of AI/ML, IoT and 5G technologies and increase in data-driven decision-making drive demand for highly scalable data and analytics technologies and services, TDC can successfully operationalize large-scale analysis on a single system of over 1,000 nodes without downtime or system failure. TDC is expected to experience growing demand from businesses in the coming months.
Recent financial results
NTAP’s net revenue for its third quarter of fiscal 2022 ended January 28, 2022 increased 22.6% year-on-year to $1.61 billion. The company’s non-GAAP gross profit was $1.09 billion, indicating a 9.8% year-over-year improvement. Its non-GAAP operating profit was $404 million, up 25.5% from the year-ago period. While its non-GAAP net income rose 32% year-on-year to $330 million, its non-GAAP EPS rose 30.9% to $1.44. As of January 28, 2022, the company had $4.18 billion in cash, cash equivalents and restricted cash.
For its fourth quarter of fiscal 2021 ended December 31, 2021, TDC’s total revenue increased 3.3% year-over-year to $475 million. However, the company’s non-GAAP gross profit was $300 million, an increase of 3.1% over the prior year period. Its non-GAAP operating profit was $90 million, representing a 34.3% year-over-year increase. TDC’s non-GAAP net income was $64 million, up 52.4% from the prior year period. Its non-GAAP EPS was $0.57, up 50% from the prior year period. The company had $592 million in cash and cash equivalents as of December 31, 2021.
Past and expected financial performance
NTAP’s EBITDA and EPS have grown at CAGRs of 0.5% and 4.1%, respectively, over the past three years.
NTAP’s EPS is expected to increase 8.5% year-over-year in the fourth quarter of fiscal 2022, ending April 30, 2022. Its revenue is expected to increase 8.2% from a year-over-year in its 2022 fiscal year. Analysts expect the company’s EPS to grow at a rate of 8.8% annually over the next five years.
By comparison, TDC’s EBITDA and EPS grew at CAGRs of 39.9% and 73.3%, respectively, over the past three years.
Analysts expect TDC’s EPS to fall 7.2% year-over-year in the first quarter of its fiscal 2022, ending March 31, 2022. Its revenue is expected to grow 5 .3% year on year in fiscal 2022. The company’s EPS is expected to grow at a rate of 12.8% annually over the next five years.
In non-GAAP forward PEG terms, NTAP is currently trading at 1.30x, 6.6% higher than TDC’s 2.49x. In terms of EV/Forward Sales, TDC’s 2.49x compares to NTAP’s 2.65x.
NTAP’s revenue over the past 12 months is almost 3.2 times that of TDC. NTAP is also more profitable, with 22% EBITDA margin against 20% for TDC.
Additionally, NTAP’s ROA and ROTC of 8.3% and 21.3% compare to TDC’s 6.9% and 14.2%, respectively.
Although TDC has an overall rating of B, which translates to Buy in our own POWR Rankings system, NTAP has an overall rating of C, equivalent to Neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.
Both TDC and NTAP have an A rating for quality, in line with their higher profitability ratios. NTAP’s trailing 12-month gross profit margin of 67.3% is 35.8% above the industry average of 49.5%. TDC posted a gross profit margin of 62.4% year-over-year, 26% higher than the industry average of 49.5%.
Of the 46 B-rated securities Technology – Material industry, NTAP is ranked #21.
TDC is ranked No. 6 out of 77 stocks in the Technology – Services industry.
Beyond what we’ve stated above, our POWR rating system also rated TDC and NTAP for stability, sentiment, momentum, growth, and value. Get All TDC Ratings here. Too, Click here to see additional POWR notes for NTAP.
The growing demand for efficient and secure data storage and management platforms from enterprises should benefit NTAP and TDC. However, a lower valuation makes TDC a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall POWR rating of Buy or Strong Buy. Click here to access top-rated Technology – Hardware industry stocks, and here for those in the Technology – Storage industry.
NTAP shares were trading at $84.08 per share on Friday afternoon, up $1.46 (+1.77%). Year-to-date, the NTAP is down -8.10%, compared to a -10.89% rise in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. Continued…