2024 has been a true rollercoaster for the shareholders of NETGEAR Inc (NASDAQ:NTGR), one of the world’s largest makers of networking hardware.
Between tumbling to over 10-year lows on weak Q1 results, spiking after a massive settlement with a key competitor TP Link, and ripping higher on rumors that the U.S. authorities are weighing an outright ban of TP-Link’s products – there were many ups and downs.
For the loyal investors, however, the drama paid off – when the dust settled, the company’s stock had nearly doubled in 2024, placing it among the year’s top performers.
To understand what exactly drove the spectacular run and to see what’s next for NTGR, Investing.com had an exclusive chat with Marc Chalfin, Chief Investment Officer of an activist fund, Windward Management, and one of NetGear’s vocal bulls.
Windward’s Stake in NTGR
Windward, a Florida-based activist fund targeting “significantly skewed and asymmetric risk/rewards,” took a 4.2% stake in the company in May of 2024.
As its CIO Marc Chalfin outlined to Investing.com at the time, the idea was simple - NetGear is a solid business, but it had struggled to overcome pandemic-related headwinds.
It has been chiefly EBITDA-positive ($60M-$150M annually) for 20 years, yet, at the time, NTGR’s market cap was just shy of $400M and just slightly above $350M+ of the cash it had on hand – implying nearly $0 value for the actual business.
If some headwinds abate and some potential catalysts materialize, the underlying business should be worth far more than $0.
Chalfin listed several potential catalysts, including the ongoing WiFi 7 upgrade cycle, improving business metrics, a share buyback with plentiful cash, and even a theoretical separation of the company’s best-performing business segment.
He also specifically pointed out the then-upcoming Congress vote on the ROUTERS Act – a bipartisan bill to examine and potentially curb the use of Chinese-made wireless equipment, in theory paving the way for massive market share gains for NTGR.
Potential Enforcement Against TP-Link
TP-Link is a Chinese maker of networking equipment. With a 60%+ market share in the U.S., it is NetGear’s biggest competitor. Over the years, it has also successfully pushed NTGR out of the lower-priced segment of the market.
While TP-Link is clearly among the targets for review under the ROUTERS Act, enforcement action against it may come even sooner – on December 18th, the Wall Street Journal reported that the U.S. authorities are considering fully banning sales of TP-Link routers in the U.S. in 2025.
In a recent chat with Marc Chalfin, he noted that in Windward’s estimate, such a ban may come as soon as the first half of 2025.
He also reflected on a recent chat with the company’s management, describing them as being “as bullish as ever,” and echoing his view that the TP-Link ban may happen in H1.
What This Means for NTGR Stock
Chalfin believes that a ban on TP-Link will not only be a massive sales driver for NetGear but will also boost the margins of its legacy business and allow the company to re-enter the lower-priced market segments dominated by TP-Link in recent years.
He estimates that NetGear can generate $150M-$200M of EBITDA. With a ‘conservative’ 8x multiple, the company’s implied enterprise value would stand between $1.2B-$1.6B, and its total value at $1.6B-$2B when factoring in the $400M of cash on hand.
Given NetGear’s market value of roughly $800M, Windward’s head sees a massive opportunity and believes shares can trade as high as $60. He sees even more upside should any other catalysts materialize, like a long-planned share buyback.
Despite more than doubling his initial investment, Chalfin reiterated his view that the real upside is still ahead. For Windward, which gained over 36% in 2024, NTGR remains one of its top holdings.