This Undervalued Stock Has Great Growth Potential
digital generation (NASDAQ:GEN) is probably not a name most investors are familiar with. However, you may know this company from its former names as Symantec and later NortonLifeLock.
Cybersecurity software company Gen Digital still owns Norton and Lifelock, but changed its name to Gen Digital last year when it acquired Avast Software, a Prague-based cybersecurity company that also owns AVG and CCleaner, among others.
Gen Digital stock is up 4% year to date and is trading at about $22 per share. With its cheap valuation and strong earnings potential, it is well positioned to move higher in the coming years.
A leader in consumer cybersecurity
The combined company’s first year was successful. In the second quarter of fiscal 2024, which ended Sept. 29, Gen Digital generated revenue of $948 million, up 27% year-over-year, and net income more than doubled to $149 million, or 23 cents per share.
Customer order-taking bookings, which are expected to drive future revenue, increased 28% year-over-year to $923 million. Gen Digital also grew its customer base by more than 300,000 people in the quarter, to 38.5 million, and increased its average revenue per user compared to the previous year.
For the fiscal third quarter, Gen Digital expects revenue to range from $950 million to $960 million, up 1% sequentially, and for full fiscal 2024 revenue to range from $3.34 billion to $3.81 billion. It is expected to increase to $400 million. In fiscal year 2023.
Gen Digital is considered a top 10 cybersecurity software company, but it focuses on the consumer or retail segment of the market rather than the enterprise segment. The company is also one of the leaders in the consumer sector. As we move deeper into the digital age with artificial intelligence and new technologies creating new threats and more reasons for security, Gen Digital’s services will be increasingly in demand.
“We founded Gen just over a year ago knowing that together, NortonLifeLock and Avast would be the company that brings cyber safety to everyone,” said CEO Vincent Pilette. “Our digital lives continue to expand, and unfortunately, so do cyber threats. “With our integrated platforms and technologies, global reach directly or through partners, and commitment to serving and winning, Gen is best positioned to lead this dynamic and expanding market.”
There is a lot of space to run
Along with steady revenue growth, Gen Digital has generated a significant amount of cash, with operating cash flow of $981 million and free cash flow of $970 million over the last 12 months. This is possible due to its high margins, with an operating margin of 39% and a profit margin of 38% over the last 12 months. This means Gen Digital operates efficiently and makes more profit than most products and services.
This revenue growth, margins and cash flow should allow us to continue to invest in new technologies, services and infrastructure to maintain a competitive advantage.
Finally, the stock is currently very cheap, with a price-to-earnings (P/E) ratio of just 9.7. The forward P/E is slightly high at 11.1, but the P/E-to-growth (PEG) ratio looking five years out is only 0.89, indicating an undervalued stock.
The median price target for the stock is $27 per share, about 21% higher than where it is today. There’s a lot to like about Gen Digital, so you may want to consider adding it to your list of stocks to watch.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
