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What: Shares of hard-drive builder Seagate Technology (NASDAQ:STX) fell 12.8% in September, according to data from S&P Capital IQ. It was a multi-stage decline, setting fresh two-year lows along the way.

So what: First, an analyst research note painted a dark picture for the future of spinning magnetic disks, pushing Seagate shares 4% lower. Then the stock fell another 6% mid-month on no particular news. Layered on top of a generally wobbly market, these events drove Seagate stock as much as 18% lower. A quick bounce at the tail end of September, powered by archrival Western Digital's receiving a large equity investment from China, could only erase about one-third of the damage done earlier in the month.

Stx

Photo: Seagate.

Now what: Analyst firm UBS Warburg, whose analysis sparked that initial slide, holds a "sell" rating on both STX and WDC as their bread-and-butter bulk storage markets move into the hands of flash-based solid-state storage devices. The price gap that has kept magnetic disks competitive so far is eroding, and enterprise customers have started to prefer the dramatically higher performance of SSD storage over the diminishing cost savings in Seagate's and Western Digital's hard drive portfolios.

UBS expects PC sales to fall 8% in calendar year 2015 and another 2% in 2016. Paired with the never-ending drop in street prices per terabyte of storage, that pessimistic forecast spells trouble for Seagate and its only remaining hard-drive rival.

UBS's estimates are tough but not unreasonable. Flash devices and other -- even faster, but way more expensive -- technologies really do threaten the end of the magnetic disk era as we know it. Seagate had better adapt to the new high-speed markets or die trying.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

That being said, Seagate's shares already trade at a rock-bottom 8.5 times trailing earnings. The company generated $1 billion of free cash flows over the last four quarters, and the balance sheet's $4.2 billion in total debt is matched by $2.5 billion of cash equivalents. In other words, Seagate won't stand at death's door until the bottom truly falls out of its end markets. That hasn't happened yet, but the stock is priced for total disaster.

So this stock stands at a crossroads today. If the UBS analysis turns out to be absolutely correct, then Seagate deserves to trade at these bargain-bin prices. If not, you should expect that compressed P/E multiple to expand and unlock tremendous value in shares bought today.

I think the death of the magnetic hard drive will take a bit longer and give Seagate some time to reinvent itself. Still a gamble, but a tempting one at these ultra-low prices.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of WDC. Try any of our Foolish newsletter services free for 30 days.

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