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Seagate Technology Holdings plc STX stock has been on an upward trajectory amid broader market volatility. Despite solid year-to-date gains, STX’s valuation remains low, prompting investors to ponder if this represents a buying opportunity.
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STX is currently trading at a forward 12 month price-to-sales ratio of 2.04X, a discount compared with the Zacks Computer & Technology sector’s 6.28X and the industry’s 3.12X.
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Shares of STX have gained 15.2% year to date, outpacing the sub-industry’s growth of 10.8%. The uptrend is driven by Seagate’s impressive top-line performance in the past few quarters due to higher demand for mass-capacity solutions. STX’s earnings beat estimates in all the last four quarters, delivering an average surprise of 85.1%. Closing the last session at $98.39, the stock is still trading 14.7% below its 52-week high.
While Seagate's recent gains may be encouraging, investors must consider whether the stock's discounted price is justified.
Let us dig deeper to find out.
STX Gains From Higher Mass Capacity Demand
Seagate, a leader in data storage solutions, is well-poised for strong growth amid favorable mass capacity demand trends despite stiff competition from prominent players in the storage space like NetApp NTAP, Pure Storage PSTG and Western Digital Corporation WDC.
Stronger nearline cloud demand and increasing nearline enterprise sales remain tailwinds. Nearline cloud demand is being driven by cloud service providers (“CSPs”) across the United States. On the last earnings call, Seagate added that it has been witnessing positive demand trends globally. In the last reported quarter, mass capacity revenues surged 70% year over year and 21% sequentially.
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Mozaic Platform: A Game Changer for STX?
Seagate expects HAMR (heat-assisted magnetic recording) to aid in exploiting megatrends like AI and machine learning, which will drive long-term demand for cost-effective mass-capacity storage solutions. The company has been ramping up its 24TB CMR / 28TB SMR drives, and these now represent the second-highest revenue product, contributing more than 20% of total nearline revenues.
Seagate added adoption of Mozaic 3+ was gaining steam. The qualification with the lead CSP customer is progressing well, and it has expanded qualifications with several other cloud and enterprise customers in the current quarter. The company anticipates delivering capacity increases through further aerial density gains for its Mozaic 4+ platform. This will lead to lower savings for its customers.