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
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
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
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.
Further respectable Foolishness:
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