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.

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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.

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