If a stock seems too cheap, there's really only two things to do (and they're not mutually exclusive) - run the numbers backwards and forwards, and buy it. While the IT hardware market in general, and the network storage market in particular, has slowed in recent quarters, NetApp (Nasdaq:NTAP) looks too cheap, unless analysts are completely wrong in their basic assumptions. Although I don't think NetApp is going to seriously threaten EMC (NYSE:EMC) for the storage throne, fading efforts at Dell (Nasdaq:DELL), Hewlett-Packard (NYSE:HPQ) and maybe IBM (NYSE:IBM), leave plenty of share to grab above and beyond the underlying market growth.

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Pretty Good Numbers for Fiscal Third Quarter
While the results from EMC and IBM probably should have had NetApp investors a little nervous going into this report, NetApp came through. While the macro environment is definitely tough (and maybe getting worse), operationally NetApp is doing pretty well.

Revenue rose 4% this quarter (and 6% from the prior quarter) on relatively flat growth in product revenue (up 7% sequentially). Product revenue growth was stunted by NetApp's OEM business, as core branded product revenue rose about 6% from the year-ago period.

NetApp also did meaningfully better on the operating side. Gross margin (non-GAAP) improved a point from last year, while a mix shift took a little out of the sequential comparison. Operating income rose nearly 8% from last year (and about 25% sequentially), and the company seemed to underspend relative to estimates down the line.

Earnings quality also looked pretty solid, as there was nothing untoward in accounts receivable or inventories.

SEE: Earnings: Quality Means Everything

Share Movements Favor the Top Two
Based on what we've seen so far through the earnings cycle, there's nothing to suggest that EMC and NetApp aren't continuing to gain share in the storage market. Excluding the OEM business, NetApp actually gained on EMC (6% year on year growth, versus 5% at EMC), but both put more distance between themselves and IBM (down 5%). Neither HP nor Dell has reported yet (Dell is scheduled to report in four days), but reseller surveys suggest more share erosion at both of these troubled storage players.

One thing to be a little concerned with at NetApp is the mix. It looks like EMC did meaningfully better on the high end (6% growth at EMC versus flat performance at NetApp), while NetApp saw greater strength with lower-end products. That also doesn't necessarily speak well to the health of the market if customers are trading down.

Plenty Going On In 2013
While NetApp joined most hardware companies in projecting pretty modest performance in the near term, there is plenty going on right now at the company. Project Mars will come out in 2013 and the general assumption is that this is an all-flash array product. While the company's CTO said a while back that the company didn't have plans for an all-flash array, it would be a logical response to EMC.

Elsewhere, the company may able to drive some addition share gains with the new ONTAP 8.2. Longer term, expanding partnerships with Cisco Systems Inc. (Nasdaq:CSCO), Citrix Systems Inc. (Nasdaq:CTXS), SAP (NYSE:SAP) and Amazon (Nasdaq:AMZN) not only expand NetApp's potential addressable markets, but may also serve to create more headaches for rivals like EMC, VMware Inc. (NYSE:VMW) and IBM.

SEE: A Primer On Investing In The Tech Industry

The Bottom Line
I own EMC shares myself, and I'm happy with that position, but I have to admit that NetApp shares look interesting right now. Between an IDC estimate of storage market growth of about 5% over the next five years and potential ongoing share gains, I'm comfortable with a 6% long-term revenue growth for NetApp. At the same time, I think the company has more room for margin and free cash flow conversion improvement, such that free cash flow growth could come in around 7%.

At that level of growth and even with an elevated discount rate, fair value on NetApp shares would seem to be in the mid-$50s. Obviously, that is much, much higher than today's price for the shares. Working backwards, it looks like the market is projecting no growth at all for NetApp (and that the company will squander that cash on the balance sheet). Now I'm willing to acknowledge the risk that storage companies could oversaturate their market like the networking companies did years ago, but I happen to believe the storage growth is legitimate. Consequently, NetApp looks priced to move and seems to be a deeply undervalued stock right now.

At the time of writing, Stephen D. Simpson owned shares of EMC since 2012.