Extreme Networks Inc (EXTR, Financial) recently showcased a significant daily gain of 9.23%, although it has experienced a slight decline of 3.43% over the past three months. This fluctuation raises an important question: Is Extreme Networks modestly undervalued? With a current Loss Per Share of 0.07, this analysis delves into the intrinsic value of EXTR to determine its true market position.
Company Introduction
Extreme Networks Inc provides cutting-edge software-driven networking services. Its portfolio includes everything from high-density Wi-Fi and network management to analytics and access controls, primarily serving enterprise customers. The company operates globally, with significant revenues generated from the Americas as well as Europe, the Middle East, Africa, and Asia-Pacific. Given its current stock price of $11.84 and a GF Value of $14.64, there's a compelling case that Extreme Networks might be undervalued.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and estimated future business performance. For Extreme Networks, the GF Value suggests the stock is modestly undervalued. This assessment indicates that the stock's market price is below our calculated fair value, offering potentially higher future returns relative to its current trading price.
Financial Strength and Stability
Before investing, assessing the financial strength of a company is crucial. Extreme Networks has a cash-to-debt ratio of 0.62, which is lower than many of its peers in the Hardware industry. This metric, coupled with an overall financial strength rating of 5 out of 10, suggests that Extreme Networks has a fair level of financial health.
Profitability and Growth Prospects
Despite its challenges, Extreme Networks has maintained profitability in 3 out of the past 10 years, with an operating margin of 3.96% that outpaces over half of its industry peers. However, its growth metrics are mixed, with a 3-year average revenue growth of 7.5%, yet a 3-year average EBITDA growth rate of 0%. This indicates some potential concerns regarding its future expansion and profitability.
Evaluating ROIC and WACC
An effective way to measure a company's profitability and value creation is by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Currently, Extreme Networks' ROIC of -3.86 is below its WACC of 11.58, indicating that it is not generating sufficient returns on its investments.
Conclusion
In conclusion, while Extreme Networks (EXTR, Financial) is identified as modestly undervalued based on the GF Value, investors should consider both its fair financial strength and underwhelming profitability metrics. For those interested in a deeper financial analysis or exploring other high-quality investment opportunities, visit Extreme Networks' 30-Year Financials or check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
