Is Extreme Networks (EXTR) Attractive After Recent Share Price Weakness?
- Wondering whether Extreme Networks is priced attractively today or if the recent share moves are a warning sign? This article focuses squarely on what you are getting for the current price.
- The stock last closed at US$14.37, with returns of a 5.4% decline over the past week, a 14.9% decline over the last month, and a 13.1% decline year to date. The 1 year return is a 7.9% decline and the 3 year return is a 23.6% decline, compared with a 5 year return of 61.1%.
- Recent attention around Extreme Networks has kept investors focused on how its networking solutions are positioned in the broader tech sector. Market commentary is closely watching how the company responds to competitive pressures and changing customer needs. This backdrop has shaped how the market is thinking about risk and potential reward at current prices.
- On our checks, Extreme Networks scores a full 6 out of 6 for being undervalued across several metrics. We will unpack this using different valuation approaches, before finishing with a more holistic way to think about what the stock could be worth.
Find out why Extreme Networks's -7.9% return over the last year is lagging behind its peers.
Approach 1: Extreme Networks Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a company might be worth today by projecting its future cash flows and then discounting those back to a single present value figure.
For Extreme Networks, the model uses a 2 Stage Free Cash Flow to Equity approach. The company’s latest twelve month free cash flow is about $126.2 million. Analysts and internal estimates project free cash flow out to 2035, with Simply Wall St extrapolating beyond the analyst forecast window. For example, projected free cash flow for 2029 is $235.5 million, with further estimated values for 2030 to 2035 shown in the model data.
Bringing all those projected cash flows back to today results in an estimated intrinsic value of about $36.99 per share. Compared with the recent share price of $14.37, the model implies the stock is about 61.2% undervalued based on these cash flow assumptions.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Extreme Networks is undervalued by 61.2%. Track this in your watchlist or portfolio, or discover 869 more undervalued stocks based on cash flows.
Approach 2: Extreme Networks Price vs Sales
For a company that is generating revenue, the Price to Sales, or P/S, ratio is a useful way to see what investors are paying for each dollar of sales, especially when earnings based metrics like P/E are less informative or very high.
Higher growth expectations and lower perceived risk can justify a higher P/S ratio, while slower expected growth or higher risk typically support a lower, more conservative multiple. So, what matters is not the level of the ratio on its own, but whether it looks reasonable given those factors.
Extreme Networks currently trades on a P/S of 1.58x, compared with the Communications industry average of 1.96x and a peer average of 2.77x. Simply Wall St also calculates a proprietary “Fair Ratio” for the stock of 3.85x. This reflects what P/S might be reasonable after considering earnings growth, industry, profit margins, market cap and risk characteristics.
This Fair Ratio can be more useful than a simple peer or industry comparison because it adjusts the benchmark for company specific factors rather than relying on broad group averages.
Set against the current P/S of 1.58x, the Fair Ratio of 3.85x suggests the shares are trading below this model based estimate.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Extreme Networks Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. Narratives let you attach a clear story about Extreme Networks to the numbers you are using such as your fair value, revenue, earnings and margin assumptions.
A Narrative connects three pieces together: the company story you believe, the financial forecast that flows from that story, and the fair value that drops out at the end. This allows you to see in one place why a certain price might look attractive or stretched to you.
On Simply Wall St, Narratives sit inside the Community page and are designed so any investor can quickly adjust a few key inputs, compare the resulting fair value to the current share price and decide whether that gap looks interesting or not, without having to build a full model from scratch.
Because Narratives are refreshed when new information such as news or earnings is added, your view on Extreme Networks can evolve over time. This is why two investors can look at the same stock and one Narrative might point to a much higher fair value while another suggests a far lower figure based on different assumptions.
Do you think there's more to the story for Extreme Networks? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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