Update - July 26, 2022

Is Seagate Still a “Buy”?

It’s a certainty that we’re in a recession. The latest GDP figures on Thursday morning will prove the idea… even if the headline writers and politicians try to squirm their way out of it.

Just yesterday, Walmart (WMT) warned of trouble in its stores. Despite strong inflation, the low-margin discounter is having to pull prices down even further just to get folks to buy.

It’s not good news.

It’s proof that consumers are being stretched beyond their limits.

But what does it mean for a stock like Seagate Technology (STX)?

Is the slowdown-induced dip we got after last week’s earnings report the start of a new trend, or does it represent a buying opportunity?

The facts will blaze the trail.

A Closer Look

Last Friday, the solid-state memory maker opened its books and showed us its fourth quarter figures. Analysts expected it to see sales of $2.78 billion, trickling down to a profit per share of $1.88.

The final figures were lower. It had revenue of $2.63 billion and earned just $1.59 per share.

Shares dipped.

Fortunately, we’re still up by double digits on the stock… which I just recommended this month.

Looking forward, management sees a mix of things.

First, much of the miss in sales and profits for its fiscal fourth quarter can be attributed to a decline in buying from the Chinese market. Thanks to fresh COVID-19 lockdowns and serious business restrictions, sales in the region were much lower than usual.

Fortunately, much of that slowdown is in the past and the company is likely to see a rebound in sales this quarter because of it.

The bigger question is what effect the overall slowdown in economic activity will have on the company’s sales for the remainder of the year. Management tells us that corporate spending remains robust, while consumer spending has weakened.

For Seagate, that’s tolerable news. We never like to hear of any segment slowing, but it’s the commercial side of things that really drives this business.

Even so, the C-suite has tweaked the company’s outlook. It now expects $2.5 billion in sales – a decline of 5% from the previous quarter’s – and about $1.45 in EPS. That’s a dip of about 8%.

Again, with those figures, it is no surprise the share price dipped last week.

But will they dip further? Or, as I said earlier in the month, is this one still historically undervalued?

Numbers to Dream About

Digging into the numbers… we find shares of Seagate are cheaper than they’ve been in a long time.

The company’s P/E ratio is 8 – a fraction of the Nasdaq’s average just above 22.

Adding growth to the mix, its PEG ratio is a dirt-cheap 0.91 – down from over 1.34 in January.

Its price-to-sales ratio is 1.48 – down a third from the end of last year.

These are numbers a value investor dreams about. We haven’t seen figures like this in a long time.

Yes, spending is waning. Yes, things are shaky out there and the news is likely to get worse.

But a stake in Seagate represents a great company at a very rare low price. It’s the sort of purchase you can make today and rest comfortably knowing its value will rise handsomely over the long term.

If you don’t own shares yet… here’s your chance.

Seagate is dirt cheap.