Among Barchart’s top 200 bullish price surprises on Friday, there were only a handful of stocks that had standard deviations over 4.00. One of them was NetApp (NTAP), a data management and storage software company.
NetApp’s stock gained over 12% on the day, bringing its gains for 2026 to 30.1% and over 80% for the past five years.
More Top Stocks Daily: Go behind Wall Street’s hottest headlines with Barchart’s Active Investor newsletter.
While that might not match the gains of high-flying tech stocks like Micron Technology (MU) or Advanced Micro Devices (AMD), NTAP did hit a new 52-week high of $141.75 on Friday. If it maintains its current momentum, NTAP could soon challenge its October 16, 2000, all-time high of $152.75.
Despite trading near an all-time high, the Silicon Valley tech company trades at a reasonable valuation relative to tech stocks in general and to the overall markets.
While I can definitely say I’m not an expert on NetApp, or most tech stocks for that matter, I can see three reasons its stock should be on your watchlist.
Free Cash Flow Rules the Roost
NetApp’s trailing 12-month (TTM) free cash flow (FCF), as of Jan. 23, 2026, was $1.61 billion, according to S&P Global Market Intelligence. That’s the highest it’s been in its 30-plus years as a public company.
Based on TTM revenue of $6.71 billion, that’s an FCF margin of 24.0%. Between fiscal 2021 and 2025, NetApp's revenue and free cash flow grew by 14.5%. That’s significant growth, but it’s enough to keep its valuation moving higher.
In Q3 2026, which it reported in February, its FCF declined by 19.8% to $271 million from $338 million a year earlier. That resulted in its FCF margin declining by 480 basis points to 15.8%.
You shouldn’t be alarmed by this. Free cash flow will vary quarter to quarter, depending on sales timing, new customers, etc. For example, in Q3 2024, its free cash flow was $448 million, considerably higher than in Q3 2026. Based on Q4 2025’s FCF of $640 million, investors can expect NetApp’s Q4 2026 FCF to be $692 million or higher, assuming similar FCF margins.
For the year, I expect NetApp’s FCF to be approximately $1.66 billion, $320 million higher than in 2025, with an FCF margin of 24.2% based on $6.85 billion in revenue, the midpoint of its guidance, approximately 380 basis points higher than a year ago.
When you can generate this kind of free cash flow, it allows you to use the five levers of capital allocation -- 1) invest in the core business, 2) acquire other businesses, 3) pay down debt, 4) pay dividends, and 5) repurchase shares -- more effectively. That’s a major benefit for NetApp shareholders.
Levers 4 and 5 Deliver Value for Shareholders
In the third quarter alone, NetApp paid out $103 million in dividends and repurchased $200 million of its stock. Through the first nine months of fiscal 2026, it paid out $310 million in dividends and $750 million in share repurchases.
Since it launched its share repurchase program in May 2003, it has repurchased 389 million shares of its stock at an average price of $45.12, an outlay of $17.55 billion over 23 years.
In the past five fiscal years, it has paid out $5.77 billion in dividends (37% of this amount) and share repurchases (63%). Interestingly, it repurchased only $125 million of its stock in 2021, but a year earlier, in 2020, it repurchased $1.41 billion.
That’s indicative of a company that’s not tied to any one of the five capital allocation levers. In 2021, its FCF was $936 million, allocating only 13.4% to share repurchases. It chose to preserve its cash during uncertain times caused by COVID-19, while using available free cash to invest in its cloud transition.
In June 2025, it repaid its $757 million of 1.875% Senior Notes that were due. Except for $550 million due in 2028, most of its $2.49 billion in long-term debt doesn’t expire until 2032 or later.
With long-term debt of just 9.1% of its market cap, NetApp continues to have excellent financial flexibility to use its free cash flow in whatever way makes sense for the company.
That’s a good problem to have.
A Reasonable Valuation
One figure stands out for me in its Q3 2026 report. That’s unbilled RPO (remaining performance obligations). These are services a company has agreed to provide but has not yet invoiced. Combined with deferred revenue, which is revenue billed but not yet recognized, you get RPO.
In the third quarter, its unbilled RPO was $482 million, 38% higher than a year ago. That’s an indication that its products are gaining traction with customers. Keystone, the company’s storage-as-a-service offering, saw sales increase by 65%. It is part of NetApp’s Hybrid Cloud segment, which accounts for 90% of its total revenue.
Based on $5.11 billion in RPOs, it still has about 9 months of revenue to recognize on the income statement. With unbilled RPOs growing at a healthy rate, and price increases possibly coming down the pike later this year, its free cash flow should grow in 2027.
It has an FCF yield of 6.1% based on its current enterprise value of $27.22 billion and a projected FCF of $1.66 billion. I consider anything between 4% and 8% to be fair value. NetApp is leaning toward undervalued, which is anything over 8%.
It’s not dirt cheap at the moment, but it’s still got a 1.5% dividend yield to tide you over should it fail to maintain momentum in the weeks ahead.
Be aware that analysts don’t like it. Of the 21 covering it, only 7 rate it a Buy (3.57 out of 5) with a target of $118.50, well below its current share price.
With NetApp’s focus on AI, I don’t see why it can’t continue to move higher. It’s got an excellent balance sheet, strong free cash flow generation, and products such as its all-flash data storage that will be needed by enterprise customers looking to use AI to get an edge on their competitors.
Patient investors ought to be rewarded.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
More news from Barchart
Walmart’s Fastest-Growing Business Isn’t Retail, but It Still Needs to Justify Its Premium Valuation Dear Nvidia Stock Fans, Mark Your Calendars for June 2 3 Reasons to Add NetApp Stock to Your Watchlist Now (Hint: Shares Are Undervalued Here) IREN Stock Is Already Up 58% in 2026. Nvidia Could Keep Taking Shares Higher.