TipRanks Smart Growth Portfolio #54: Packet Detectives
Dear Investors,
Welcome to the 54th edition of the Smart Growth Portfolio and Newsletter, where we spotlight a company that makes network data visible and secure. But first, here are some news and updates.
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Portfolio News
❖ Micron’s (MU) stock has surged by more than 40% year-to-date, clocking in a gain of over 325% over the past year. The only U.S.-based producer of advanced memory chips has been riding the unprecedented demand posed by the artificial intelligence buildout. As HBM and other types of next-gen memory become a structural bottleneck in AI advance, prices are surging by triple digits, benefiting producers like MU, and analysts say that shortages may last for at least two years from now.
As Micron prepares to report its fiscal Q2 2026 on March 18, expectations are high for its key position on the AI supply chain to be reflected in the results and guidance. This is being communicated through multiple price-target upgrades, with some analysts – like Susquehanna, Wedbush, and Wolfe Research – hiking their PTs by more than 40%.
Other developments support a positive outlook on Micron. The company announced a key strategic partnership with Applied Materials to co-develop next-generation AI memory solutions, combining their capabilities and bolstering the semiconductor innovation pipeline in the U.S. The partners plan to focus on advancing energy-efficient DRAM, HBM, and NAND technologies and shortening commercialization cycles for AI-focused memory products.
The collaboration intends to answer a newly emerged conundrum, where the AI infrastructure buildout is generating unprecedented demand for high-bandwidth memory, yet the process technology is reaching the limits of conventional scaling approaches. MU’s partnership with the leading advanced materials engineering provider is signaling a shift in approach, concerning entirely new high-performance dielectrics, new metals used in wiring, and more. As such, this is a strategic response to the deepening interdependence between memory process technology and the viability of next-generation AI compute, considerably reinforcing Micron’s strategic positioning in the AI memory supercycle.
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❖ Itron (ITRI) has been initiated with a Buy at Needham. The firm’s $124 price target implies a potential upside of more than 35% for the stock. Analysts cite a “structurally dominant position” in North American smart metering and note that ITRI holds 35% of the installed base and 64% of network endpoints in the smart metering market, positioning it “at the center” of a multi-year Advanced Metering Infrastructure 2.0 replacement cycle that extends demand visibility. Itron’s stock has pulled back recently despite strong earnings results, as a cautious macro backdrop amid rising oil prices, geopolitical uncertainty, and mixed inflation data weighs on investor sentiment.
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❖ Atlanticus Holdings (ATLC) released stellar Q4 and full-year 2025 results. The credit-as-a-service fintech’s total operating revenue and other income soared 108% year-over-year in Q4, reaching $734.4 million – well ahead of the ~$692 million consensus – while its EPS flew past estimates of $1.59 to arrive at $1.75, an increase of 23.2%. Managed receivables increased 155.2% to $7.0 billion, and return on equity exceeded 22%.
While headline numbers were inflated by the initial effects of the Mercury Financial acquisition, completed in Q3 2025, core business metrics also showed strong organic growth. Core revenue rose 35% year-over-year in the fourth quarter and 27% in 2025. Managed receivables excluding Mercury rose 37.2% for the full year, while new account originations surged 73% to over 2.2 million. Purchase volume rose 54% in Q4 and 32% for the year. At year-end, unrestricted cash stood at over $600.0 million. The company has almost $1.0 billion of committed and undrawn bank warehouse lines to support ongoing receivable growth.
The Mercury integration was a core watchpoint in this report, as ATLC’s strategic bet on growth was weighed against the 67% year-over-year jump in associated operating expenses. The acquisition added a massive $3.2 billion in credit card receivables and 1.3 million accounts to Atlanticus’ platform, bringing the number of total customers served to 6 million and effectively doubling the size of its balance sheet to roughly $7 billion.
Now, the execution of that integration was revealed as one of the key drivers of the quarter’s performance, signaling the stock may be ready to re-rate higher from its depressed valuation – despite a challenging broad-market setup in the short term and continued weakness in financials shares. CEO Jeff Howard highlighted that the integration is moving ahead of plan with an estimated 18-month timeline. Moreover, the expected cost synergies and incremental returns through 2027 and beyond support Atlanticus’ long-term outlook targeting earnings growth above 20% annually.
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This Week’s Top Growth Pick: NetScout Systems (NTCT)
NetScout Systems operates at the intersection of network visibility, cybersecurity, and digital infrastructure resilience. The company develops platforms that allow organizations to see, analyze, and protect the massive volumes of data moving through modern networks. Its technologies monitor traffic in real time, detect disruptions or malicious activity, and help operators keep critical systems running smoothly even as networks grow more complex. As cloud computing, 5G connectivity, and AI-driven workloads push data flows to unprecedented scale, visibility into what is actually happening inside those networks has become essential. NetScout focuses on that operational layer – where performance monitoring, threat detection, and traffic intelligence converge to ensure that the world’s most demanding digital environments remain stable, secure, and continuously available.
Source: NetScout Corporate Brochure
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Deep Packet Roots
NetScout’s origins trace back to 1984, when the company was founded to solve a problem that would only grow more critical as digital networks expanded – understanding what actually happens inside complex data environments. From the outset, NTCT focused on deep packet inspection and traffic analytics, building technologies that allowed operators to monitor performance, troubleshoot disruptions, and analyze network behavior in real time. Over time, those capabilities expanded from enterprise monitoring into large-scale carrier networks and cybersecurity.
A pivotal turning point came in 2015, when NetScout acquired Danaher’s Communications Business in a major transaction that reshaped the company’s scale and technological reach. The deal brought together Danaher’s network testing, service assurance, and monitoring technologies with NTCT’s analytics platform, significantly broadening its presence inside global telecommunications infrastructure. The transaction also brought Arbor Networks fully into the NetScout portfolio, strengthening its position in distributed denial-of-service (DDoS) protection and threat intelligence. Together, these assets transformed NetScout into a much larger provider of network visibility and security solutions embedded across telecom operators, enterprises, and government networks.
The past five years have been defined by NetScout’s adaptation to a far more demanding digital infrastructure landscape. As cloud traffic, 5G deployments, and distributed architectures pushed data volumes to unprecedented levels, the company concentrated on expanding its visibility platform to operate at higher speeds and across increasingly complex environments. Much of this effort centered on advancing its smart data technology – the analytical layer that extracts operational intelligence directly from network traffic. Continued upgrades to that architecture have enabled NTCT to support operators managing software-defined networks, virtualized infrastructure, and hybrid cloud environments.
Automation and AI-driven capabilities have also become a growing part of the platform. NetScout has incorporated machine learning models designed to detect anomalies, accelerate troubleshooting, and improve threat detection across large-scale networks. These capabilities help operators identify performance issues and potential cyber threats more quickly in environments where the volume of telemetry data has become too large for manual analysis.
Strategic collaborations reinforced this evolution. Over recent years, NTCT has expanded integrations with major telecom equipment providers, cloud platforms, and cybersecurity technologies, ensuring its visibility tools function across hybrid infrastructures spanning physical networks, virtual environments, and cloud deployments. The company has also maintained long-standing relationships with large telecommunications operators and government organizations responsible for critical communications infrastructure.
NetScout’s evolution over the past decade has largely been driven by platform expansion and deeper integration into next-generation network architectures. As global connectivity shifts toward highly distributed, high-capacity systems, the company’s long-standing focus on network intelligence has kept it closely aligned with the operational challenges facing modern digital infrastructure.
Source: NetScout Corporate Brochure
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Visibility Scouts
NetScout operates at the control layer of modern digital infrastructure, where performance monitoring, cybersecurity, and operational analytics converge. Its platform analyzes live network traffic to reveal how applications, devices, and services behave across complex environments. Instead of relying primarily on logs or endpoint agents, NTCT extracts intelligence directly from packets moving through the network – a method known as deep packet inspection (DPI). That approach forms the backbone of the company’s Adaptive Service Intelligence (ASI) architecture, which converts raw traffic into high-fidelity operational data used by enterprises, telecom operators, and governments to manage performance, detect cyber threats, and maintain service reliability.
The business model rests on two tightly connected pillars: network observability and service assurance, and cybersecurity and threat intelligence. Observability remains the largest segment, accounting for roughly two-thirds of revenue. Here, NetScout helps organizations monitor application performance, troubleshoot disruptions, and maintain uptime across hybrid infrastructure that spans on-premise networks, cloud platforms, and distributed edge environments. The platform’s nGeniusONE software and edge sensors monitor traffic across Ethernet, Wi-Fi, and increasingly complex environments such as remote offices and industrial sites. Because these tools sit deep inside network operations, they tend to become embedded in customers’ infrastructure, creating high switching costs and durable relationships with large enterprises and tier-one telecom providers.
Cybersecurity forms the second pillar and the faster-growing one. Through the Arbor platform and its Omnis cyber intelligence tools, NTCT provides DDoS mitigation and threat detection capabilities that operate directly within network traffic flows. That vantage point gives the company unusual visibility into global internet activity. NetScout monitors traffic across roughly two-thirds of the routed IPv4 internet,1 analyzing millions of daily attack signals across thousands of autonomous networks. This scale gives NTCT one of the largest real-world data views of global internet traffic, strengthening the accuracy of its threat intelligence and network analytics. Its recent threat intelligence report identified more than 8 million DDoS attacks worldwide in just six months, underscoring the scale of the cyber threat environment and reinforcing demand for real-time mitigation and monitoring tools.
A third layer of growth is emerging around AI-driven observability. NetScout has begun transforming its packet-level data into curated “Smart Data” streams designed for artificial-intelligence systems. Products such as the Omnis AI Sensor and Omnis AI Streamer convert massive volumes of network telemetry into structured datasets that power automated troubleshooting, predictive maintenance, and AI-driven operations platforms. Telecom operators are exploring similar capabilities to support 5G networks, where NTCT’s observability tools monitor traffic across network slices and help verify service-level agreements. With network slicing2 expected to grow rapidly over the coming decade, this layer could become a meaningful expansion opportunity.
The broader observability and AIOps market is estimated at around $19 billion today and projected to roughly double over the next decade as enterprises automate IT operations and secure increasingly distributed infrastructure. NetScout currently commands only a modest share of that market. Yet its deep-packet-inspection heritage, large installed base among telecom carriers and enterprises, and expanding AI-driven analytics stack position it as a specialized provider of the operational intelligence required to keep modern networks running – and increasingly, to defend them.
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1 – Routed IPv4 Internet refers to the public Internet address space that is actively advertised and reachable through global routing systems.
2 – Network slicing is a 5G technology that allows telecom operators to create multiple virtual networks on the same physical infrastructure, each optimized for different applications or performance requirements.
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Source: NetScout Corporate Website
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Margin of Intelligence
NetScout’s recent financial performance reflects an ongoing transition toward a higher-margin recurring revenue model, with that shift limiting top-line growth in the short term, while profitability and cash generation continue to strengthen.
In fiscal Q3 2026, revenue reached $250.7 million, roughly flat year-over-year but ahead of expectations, extending a streak of seven consecutive revenue beats versus analyst estimates. Adjusted EPS came in at $1.00, continuing a longer track record of outperforming earnings forecasts since analysts began publishing non-GAAP estimates in 2021.
Looking beyond a single quarter reveals clearer momentum. Revenue for the first nine months of fiscal 2026 rose to roughly $656 million, representing about 6% year-over-year growth. Earnings have expanded faster than revenue: nine-month adjusted EPS climbed to $1.96 from $1.70 a year earlier, an increase of roughly 15%. This widening spread reflects a favorable shift toward software-driven services and disciplined cost control, allowing the company to capture operating leverage as the business scales.
Segment dynamics help explain the trend. Service assurance – NetScout’s largest business line, still accounting for roughly 64% of revenue – grew about 5% year-over-year, while the cybersecurity segment expanded faster at around 9%. Enterprise customers are currently the strongest driver of growth, with revenue from that vertical rising about 9.4% year-over-year and now representing approximately 58% of the business. The telecom carrier segment remains slower at roughly 2% growth, reflecting tighter capital spending across service providers. At the same time, the mix of recurring service revenue continues to increase and now represents more than half of the total – a structural shift that supports margin expansion.
Profitability metrics reinforce that shift. Non-GAAP gross margin reached approximately 82.8% in the most recent quarter, placing NTCT among the most profitable infrastructure software vendors. Operating margin improved to about 35.9%, while operating expenses declined modestly year-over-year. The company has been consistently profitable on a non-GAAP basis for years and remains solidly profitable under GAAP as well, reflecting strong underlying economics.
Cash generation and balance sheet strength further underline financial stability. NetScout generated about $62 million in operating cash flow during the quarter and roughly $59 million in free cash flow. Cash, cash equivalents, and investments totaled approximately $586 million at quarter-end, while the company maintains a $600 million revolving credit facility with no outstanding borrowings. That debt-free position gives management flexibility to invest in product development while also returning capital through buybacks.
Guidance suggests that while explosive growth is not expected, steady expansion is likely to continue. Management raised the midpoint of its fiscal 2026 outlook, now expecting revenue of $835-870 million and adjusted EPS of $2.37-2.45. Timing-related factors remain a watchpoint: about $15 million of revenue was pulled forward into the third quarter as customers used remaining budget allocations, and delays in server procurement by customers can occasionally shift software deployments between quarters. Even so, the broader pattern remains clear. NTCT’s fundamentals increasingly reflect a high-margin, cash-generative software platform positioned to grow alongside the rising complexity of global network infrastructure.
Source: NetScout Q3 FY26 Financial Results Presentation
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Scout’s Honor
NetScout’s comps sit on a spectrum that ranges from mature infrastructure monitoring to high-growth observability software. Its closest peer is Viavi Solutions, operating in the same carrier-grade service assurance and network monitoring domain. Radware provides the most relevant cybersecurity comparison, particularly in DDoS mitigation and network-layer protection. Meanwhile, Dynatrace, with its AI-driven monitoring platform, represents a broader observability benchmark. Together, these companies provide a useful set of reference points for assessing NTCT’s stock performance and valuation.
Over the past year, performance divergence across this group has been driven less by underlying business quality than by starting valuations and shifting narratives. NetScout’s roughly 45% gain over the past year reflects two contrasting forces, with consistent execution and modest earnings beats outweighing still somewhat constrained telco spending to drive a steady re-rating as it proved its business model remains resilient in an AI-first world. Meanwhile, Viavi surged by triple digits thanks to its transformative M&A activity and its position in the AI data-center build-out through its fiber-optic testing business. At the same time, Radware’s modest advance reflects strong competitive pressure in its niche, capping prospective upside despite solid fundamentals. Finally, Dynatrace’s decline is a classic case of multiple compression after trading at a massive premium, as capital rotated toward cheaper cash-generative names like NTCT and sharper recovery plays like Viavi.
Despite scoring a strong second place in the stock-performance race, NetScout is still trading as if it came last, with valuation metrics that remain below those of its peers. NTCT sits at the bottom of its comp group on trailing and forward non-GAAP P/E, EV/Sales, EV/EBITDA, and Price/Sales. DCF models suggesting the stock is undervalued by roughly 30-40% reinforce what appears to be a rare setup in the tech space: a steadily growing, debt-free, highly profitable small cap with ample room for further gradual re-rating. While not a flashy AI name with super-fast growth, NTCT’s robust fundamentals and consistent execution, combined with its modest valuation multiples, help place a natural floor under the stock – a factor that becomes particularly valuable amid current market turbulence.
Active buybacks are another significant advantage, with NetScout’s strong cash position allowing the company to return capital to shareholders while continuing to invest in the business. Under its long-standing May 2022 buyback authorization, the company repurchased roughly $73.5 million worth of shares during the first three quarters of fiscal year 2026, reducing its share count by nearly 5%. Management has been vocal about its view that the stock is undervalued, and has stated that it still has remaining authorization capacity and intends to remain active in buybacks through the rest of FY2026 and into FY2027, subject to market conditions.
Taken together, these factors suggest that NetScout’s current valuation reflects market caution while the underlying business continues to perform steadily. If execution remains consistent and the mix shift toward higher-margin software continues, the gap between fundamentals and market pricing leaves ample room for gradual multiple expansion.
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To Sum It All Up
NetScout operates at a critical layer of the digital economy – the visibility and intelligence that allow modern networks to function securely and reliably. As global connectivity expands and cyber threats grow more sophisticated, the ability to observe, analyze, and protect traffic across complex infrastructure becomes increasingly valuable. NetScout’s combination of carrier-grade monitoring, enterprise visibility, and large-scale DDoS protection places it in a unique position within that ecosystem. Its software-driven model, strong profitability, and disciplined execution provide a stable foundation while new opportunities emerge from expanding network complexity and security demands. The company may not capture headlines in the AI arms race, but the underlying need for real-time network intelligence continues to grow. If NetScout maintains its execution and continues expanding its platform capabilities, it has the potential to gradually gain recognition as an essential infrastructure player in the increasingly data-driven world.
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Smart Growth Portfolio
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Disclaimer
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