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About Seagate
I’d like to think that my memory bank is pretty darn good at taking and holding onto deposits, but I know my limits and as a pure matter of fact, I will concede that Seagate’s memory is and will always be just a little better than mine.
But only just a little.
Well alright, perhaps I am being just a tad overconfident, as storing terabytes of memory, data and all sorts of information is the exact business that Dublin, Ireland-domiciled, Fremont, California-headquartered technology company Seagate is in, serving some of the world’s largest enterprises on the daily. Some of Seagate’s larger customers include the likes of Dell, Hewlett-Packard, Lenovo, IBM, Apple, Google, Amazon Web Services (AWS), Meta Platforms, Alibaba’s cloud segment, among others, but the company also serves the individual consumer, offering among the most complex and scaled enterprise solutions to custom solutions for the grandpa that just wants to store his pictures of his children and grandchildren on an external hard drive, more than likely because he doesn’t like, understand or even trust his computer.
I get it grandpa, I get it.
The company has a rather extensive product line, ranging from more basic yet capable and practical products like its Barracuda model, seemingly intended for the grandpas of the world (and other individuals not in need of a terrible amount of space in order to store some photos, videos or other files, and the Barracuda can also extract and safe store memory from one’s compatible video game console, too, by the way), to among the most complex products intended solely for those that operate data centers, storing copious amounts of data and processing said data at incredibly rapid rates, along with, of course, a handful of memory storage products and solutions in between.
Candidly, this stock got put on my radar through my continued 13F chronicles, as I saw a few of my favorite hedge fund managers either piling into the company’s stock (NASDAQ: STX) during the most recent fiscal quarter or simply maintaining their previously held stakes in the company, which does make a good deal of sense.
As of the last one year’s span of time and up to now and most definitely moving forward, Seagate is an artificial intelligence (AI) play, not to mention the Cloud, which is frankly, from my perspective, not getting nearly as much press as it should be, however, the Cloud and AI are quickly becoming one in the same among the largest operators in both of these spaces, which, evidently, warrants the considerable amount of pent up demand for a company such as Seagate, that is in the data storage business, and as the information and data economies continue scaling proportionately with the continual growth of artificial intelligence, well, no wonder some fund managers got on the Seagate train.
More AI means more data, more data means more data centers and more data centers mean more potential business for Seagate.
Nevertheless, I’ve never been the type to blindly monkey see, monkey do with a fund manager’s displayed holdings, so allow me to walk you through some independent research with respect to Seagate, primarily rooted in its core financials and other relevant metrics and ratios and let’s see if, besides the AI wave, we can see what others happen to see in this company.
Seagate’s stock financials
Over the last one year’s span of time alone, Seagate’s stock is up nearly 70%, which I believe is worth briefly noting, as like most other AI plays, getting a deep discount isn’t exactly an easy task at the moment, however, when considering the long run and the big picture in this space, I am certainly of the mindset that given the sheer potential of cloud computing and artificial intelligence, Seagate’s shares could very well be trading at a discount, in the long run, as I pound my keyboard.
I’m just saying just because a stock doesn’t seem to be trading at a historical discount, doesn’t mean you should instantly discount the stock itself and its future prospects; past performance does not guarantee future performance.
And that applies both to the upside and the downside, by the way.At any rate, Seagate, according to its market capitalization, is a $21.51 billion company with a share price of $102.43 along with no readily available or displayed price-to-earnings (P/E) ratio and I’ll also mention the fact that it pays out a current annual dividend of $2.80 to its shareholder base.
Everything is sort of business as usual so far, barring its present price-to-earnings ratio (or lack thereof), as I was initially perplexed as to why it doesn’t seem to have any earnings to display, however, given just how much this company is likely growing at the moment in the data center category alone, it sort of makes sense that Seagate doesn’t have any earnings to display, as this current AI revolution calls for a considerable amount of nationwide and global investment, and with this sort of scale of past, current and future investment, margins will naturally become a bit muted and some short-to-intermediate-term profit will be sacrificed. One could also gain a bit of comfort in this respect, as when briefly looking at the price-to-earnings ratios of its most direct, tough-as-nails competitor, a company such as Western Digital is in the same exact boat as well.
Lastly, a dividend hardly hurts, and I really wasn’t actually expecting this (likely) growing storage technology company to issue a dividend, however, it generally checks out being that this company has been around for a good deal of time (founded in 1979) and therefore has probably been able to turn over a consistent enough amount of cash each year in order to sufficiently support its dividend.
I will, of course, verify this later on within this stock analysis article.
With respect to the company’s balance sheet, Seagate’s board of directors are steering the ship with just about $7.5 billion in terms of total assets as well as maintaining its total liabilities in the order of $8.7 billion, which, I suppose, once again, is a sort of byproduct of investing both heavily and intensely within its core businesses, as while this company does technically have an upside down balance sheet (meaning more total liabilities on its books than total assets), however, for me, this isn’t the balance sheet I want this company riding into the AI revolution with, as it isn’t really setting itself up for a great deal of success being that even before this stuff really starts to unfold, it’s already become a bit of a challenge to sufficiently service and contain its outstanding liabilities, and this is a company that needs as much dry powder and financial and capital wiggle room as possible so as to continue growing and serving more customers and data centers.
Now, I am not so naive as to have initially hoped that this company had a markedly total asset-heavy balance sheet, however, I didn’t expect it to be this total liability-skewed, as this is a lot of debt to service (both in the context of the short and long terms) in the context of what it actually owns and the cash it has on hand.
Regarding the condition of the company’s income statement, Seagate’s annual revenues since 2019 have been rather consistent for the most part, ranging between $10 billion and $11 billion between and during 2019 and 2022, however, due to an apparent decline in sales (predominantly due to a lack of demand for its storage services) as well as through cutting some of its product pricing, the company’s revenues swam down to $7.3 billion in 2023, its most recently reported revenue figure, which is pretty much beyond me.
I mean, how does a company such as this one that is operating in such a favorable environment also such as this one manage to shave off $3 billion in revenue for the year?
This is a material change towards the downside.
My initial thoughts lead me to believe that there was and/or still is something wrong with this company at a systemic level, as 2023 was a prime year for demand and expansion of data centers, yet it seemingly saw a substantial drop in sales between 2022 and 2023, which makes no sense to me and while this company has likely pivoted sharply into new but related products, I need to see it through the numbers and those numbers aren’t out yet.
Moving onto the company’s cash flow statement, Seagate’s total cash from operations throughout the exact same timeframe have sang a very similar tune trend-wise as it relates to its aforementioned annualized revenue figures, but specifically hanging out and around the mid-to-high $1 billion area code during and throughout 2019 and 2022, inherently dropping down to $942 million, as reported in 2023. I will give credit where it is due and say that given its recent decline in revenue, I would’ve thought its total cash from operations would’ve been much lower, but they weren’t, speaking quite favorably to the company’s ability to generate cash from its sales and related operations, and thus having the ability to seemingly support its dividend.
Seagate’s stock fundamentals
Pertaining to the company’s net profit margin, according to Charles Schwab’s platform, Seagate’s is objectively rough (but to have been reasonably expected given the all of the previously shown facts and figures, honestly) but on the basis of comparison to its biggest competitor, not all that bad.
More specifically, the company’s displayed net profit margin is -4.31% to Western Digital’s even less attractive -13.03%, but this still doesn’t negate the fact that this article isn’t about one being better than the other, but strictly about Seage Technology Holdings Plc and its prospects as an investment moving forward.
With that, this company losing some money and being negative on the net profit margin front is reasonable at the moment, given the amount it is investing and how rapidly it is growing its scale. Therefore, being that I expected this and really think anyone should’ve reasonably expected this to have been the case, I am not going to pull my hair out over this one metric, at least for and over the next few years.
Should you buy Seagate stock?
I am largely conflicted.
While some of the greatest, most talented fund managers have put their hats into this stock (NASDAQ: STX) and given just how unbelievably promising artificial intelligence is and how much Seagate has to reap from the expansion of AI and associated data centers and the furthering of the cloud computing landscape, sure, this company’s stock can be viewed as undervalued, however, given the cold, hard figures that I outlined, I need to personally see some tangible improvement as it relates to its balance sheet becoming more revolution-ready, not to mention that its softening revenues as reported in 2023 were far from encouraging given the age we are currently living in and there’s a weird psychological phenomenon that commonly strikes investors in which, for whatever reason (there are plenty, believe me), the higher a stock price goes, the cheaper it seems, and among other mapped out reasons, I don’t want to fall into that trap right now either.
Thus, the “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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