Q: What happens when you achieve 34% revenue growth and a whopping 400% net income growth in one year?

A: You get downgraded, and your stock drops.

That's precisely what happened to Seagate (NYSE:STX) after reporting strong fiscal first-quarter 2006 earnings on Tuesday. Sales were $2.09 billion, and earnings reached $272 million, compared with last year's $1.56 billion and $54 million, respectively. A leap in gross margins, from 17.7% last year to 25.6%, contributed significantly to this year's much stronger earnings. The strong business performance, coupled with a 31% stock-price tumble from its 52-week high, means that Seagate is trading for a wimpy P/E of just 8, based on trailing-12-month earnings.

To be fair, a number of factors are weighing on the stock. Seagate forecasted lower earnings for the current quarter, even though sales should stay at about the same level. It's also being pressured by the emergence of NAND flash memory in products that have always relied on hard drives. Apple's (NASDAQ:AAPL) recent decision to base the iPod nano on NAND flash memory from Samsung was a blow to Seagate. Furthermore, Samsung is working to develop a solid-state drive based on flash memory to replace laptop and desktop hard drives, claiming that it will take 20% of the desktop storage market by 2008. (That's an aggressive target, considering the technical hurdles Samsung will have to overcome. Like a pair of shoes, flash memory tends to wear out after too many uses, and its relatively low capacity and high price at present aren't helping its case.)

One last relevant reason to be wary of Seagate's stock is the cyclicality of its business. You do have to be careful buying cyclical stocks when things are looking rosy and the P/E ratio is low. For example, earnings have been strong for oil producers and homebuilders, but I'd rather be selling than buying those stocks now.

Nevertheless, Seagate is worth a look. They are the strongest company in the industry and, according to market research firm iSuppli, have a much higher market share (30.5%) than any of their competitors, including Western Digital (NYSE:WDC), Maxtor (NYSE:MXO), and Hitachi (NYSE:HIT). Despite flash competition at the low end, hard drives have growing markets in devices like the TiVo (NASDAQ:TIVO) and other digital video recorders, gaming consoles, enterprise data storage networks, and automotive applications.

Given all these potential growth drivers, I believe that Seagate shares' weakness gives investors a chance to own an industry-leading company at a tempting price.

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Fool contributor Dan Bloom holds no financial position in any stock mentioned in this column. TiVo is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.