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Anatomy of Success: NetApp (NTAP)

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The Zacks Rank methodology is a unique way to discover some of the best companies to invest in and is a useful tool for beginners and more experienced investors alike; it identifies companies both big and small that have the right characteristics to produce superior gains.

When a company earns that coveted Zacks Rank #1 (Strong Buy) label, its means they have a high probability of outperforming the market over the next one to three months. But, achieving this high rank is not an easy thing to do, as only 5% of companies within the Zacks Rank universe earn this position.

Below, we highlight a stock that has evolved into a strong player in the broad cloud industry, and by following our ranking system, investors could have realized major gains.

NetApp Inc. (NTAP - Free Report)

Headquartered in Sunnyvale, CA, NetApp provides a full range of hybrid cloud data services that simplify application management and data across the cloud and on-premise environments to accelerate digital transformation. Together with their partners, they empower global organizations to unleash the full potential of their data to expand customer touchpoints, foster greater innovation, and optimize their operations.

NTAP was added to the Strong Buy list for the first time in late November of last year after the tech company reported better-than-expected second quarter fiscal 2018 results. Earnings of 81 cents per share easily beat the Zacks Consensus Estimate, while revenues of $1.42 billion grew 6% year-over-year. Product revenue increased 14% from the prior year period, and NetApp said that all-flash array annualized net revenue run rate of $1.7 billion increased 58% year-over-year. Shares closed that initial November trading day at $56.41.

The stock kept up its #1 run until well into January and was made a Strong Buy stock again on April 20. This was most likely due to analyst bullishness as the company headed into its fourth earnings report, as well as the lingering effects of impressive Q3 results. During the third quarter, net revenues grew 8% year-over-year, earnings beat our estimate, and guidance was positive and above what analysts were expecting. Six months after first becoming a Zacks Rank #1, shares of NTAP were up almost 22% to $68.66.

NTAP held onto the #1 rank for another good run, thanks to a strong Q4 performance. Both its top and bottom line beat the Zacks Consensus, with net revenues increasing 11% year-over-year; 2018 product revenue jumped 15% from 2017. And, free cash flow was 23% for the year and increased 64% year-over-year.

As a result, the stock was given the Strong Buy title once again on June 1 and has been able to hold on to that rank ever since. Eight months after first becoming a Zacks Rank #1, shares of NTAP grew 24% to $69.71. Additionally, shares of the cloud company are up around 70% in the past one-year period.

This table shows the price performance of NTAP (in red), as well as the 12-month forward looking EPS estimate (in green) over the last one year. During this stretch, NTAP never moved lower than a Zacks Rank #3 (Hold).

By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.

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