Why Netlist Stock Is Back In Focus After The Samsung Alliance

Netlist (NLST) is back on investor watch after announcing a five year alliance with Samsung that includes a patent cross license, product supply arrangements, and the settlement of all legal disputes.

The Samsung alliance has arrived after a huge swing in Netlist's share price, with a 7 day share price return of 60.23% and a year to date share price return of 285.27%, while the 1 year total shareholder return sits at a very large 442.44%. Longer term, 5 year total shareholder returns are still negative, which hints that recent momentum is building from a low base rather than reflecting a long unbroken run.

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Bulls see the Samsung alliance and recent profitability as a turning point for Netlist. Bears focus on past weak long term returns and execution risk. Which side does the current valuation support next?

Preferred Price-to-Sales Multiple of 3.8x for Netlist: Is It Justified?

Valuation for Netlist currently hinges on its P/S ratio of 3.8x, which sits above both the US Electronic industry average and its direct peer group.

The P/S ratio compares a company’s market value to its revenue. For a memory and semiconductor focused business like Netlist, this is a commonly watched measure because earnings can be influenced by one off items, while revenue gives a clearer picture of what customers are actually paying for today.

In Netlist's case, the 3.8x P/S ratio is higher than the US Electronic industry average of 2.9x and the peer average of 2.8x. This suggests the market is assigning a richer revenue multiple than many comparable companies. However, this same P/S ratio is below the estimated fair P/S level of 4.1x. This implies that if market expectations moved closer to that fair ratio, the valuation multiple could shift higher.

Result: Price-to-Sales of 3.8x (OVERVALUED vs peers, but BELOW estimated fair ratio)

However, Netlist still carries execution risk around the Samsung alliance and future profitability, and any disappointment here could quickly challenge the current P/S premium.

Next Steps

With Netlist back in focus and opinions clearly split, it makes sense to review the full picture quickly and form your own stance. To weigh both the potential upsides and the concerns that other investors are watching, take a closer look at the 2 key rewards and 2 important warning signs.

Looking For More Ideas Beyond Netlist?

If Netlist has sharpened your interest, do not stop here. Cast the net wider now so you are not late to the next opportunity.

• Target potential mispricing by checking companies that look attractively valued on quality and fundamentals through the 50 high quality undervalued stocks.
• Strengthen your income stream by reviewing companies with robust yields and payout profiles using the 8 dividend fortresses.
• Reduce portfolio stress by focusing on companies with steadier profiles through the 78 resilient stocks with low risk scores.

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.