Seagate: Investing Deja Vu?

Pardon me this Friday. I'm feeling a little woozy. I'd say it was because I put my truck in a ditch yesterday -- and I really did -- but that's not it. It's the deja vu.

Let me explain. Wednesday afternoon, Seagate (NYSE: STX  ) announced impressive gains in sales and earnings. Revenue reached $2.3 billion, up roughly 25% year over year. And earnings per share came in at $0.57 per stub, up nearly 97% over the same period.

The momentum reminds me more than a little of how well Apple (Nasdaq: AAPL  ) was doing two years ago, when I singled it out as a very attractive short-term investment. Let's consider the business and financial parallels, starting with Apple. Two years ago, Apple:

  • Had seen iPod orders grow by more than 200% year over year.
  • Had grown revenue by 36% over the same period in fiscal 2003.
  • And was trading at a significant discount to its expected 12-month growth rate.

How does Seagate measure up, you ask? First, the drive maker's storage devices are making their way into dozens of new devices, including digital video recorders. And that's led to prodigious growth: 2.4 million of the 3.5 million drives Seagate shipped for consumer-electronics devices made their way into DVRs, a 93% increase from the same period during 2005.

Second, Seagate has vastly improved its balance sheet. At the end of the second quarter, the company had roughly $2.66 per share in net cash. That's valuable insurance in the event that the Maxtor (NYSE: MXO  ) acquisition doesn't go as well as planned.

And, finally, Seagate's short-term valuation is compelling. Consider: The company expects $2.065 in average fiscal 2006 per-stub earnings. Divide that by $25.18 -- the per-share price as of this writing -- and you'll see that the stock trades for just 12.2 times 2006 profit.

Call me crazy if you'd like, but that sounds insanely cheap for a company that's powering everything from TiVo (Nasdaq: TIVO  ) clones to Microsoft's (Nasdaq: MSFT  ) Xbox 360 to notebook PCs from Dell (Nasdaq: DELL  ) and others. Or for a stock that could grow profit after options expensing by more than 60% during fiscal '06.

Now, I could be wrong, of course. But the last time I found a situation this good, I stood paralyzed and watched Apple investors get rich. Not this time. This time, I'll actually do something.

Don't blink; you'll miss all the related Foolishness:

High-tech. Biotech. Nanotech. Any tech. David Gardner and his merry band of Foolish analysts cover it all forMotley Fool Rule Breakers, and they're punishing the market as a result.Sign upfor a risk-free 30-day trial today to find out which picks are helping push the portfolio to outpace the market by more than 20% as of this writing. Orsubscribeorrenewnow, and we'll throw inStocks 2006, which features our top analysts' best picks for the year ahead. All you have to lose is the prospect of a richer portfolio.

TiVo and Dell are aMotley Fool Stock Advisorselections. Microsoft is aMotley Fool Inside Valuerecommendation. To find a newsletter that fits your investing style, click here. Find one you like and take a 30-day trial for free!

Fool contributorTim Beyersis all about the multibagger. He hopes he doesn't miss out this time. Us, too. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 510506, ~/Articles/ArticleHandler.aspx, 12/18/2014 11:39:19 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement