Why one of the oldest US tech stocks is a value opportunity today
Tech stocks have borne the brunt of the recent sell off in equity markets. And while the Nasdaq is firmly in bear market territory, unprofitable tech stocks have been hit the hardest down almost 60% this year.
It should be remembered that not all growth stocks are genuine disruptors.
But given recent market moves, long term investors may be well rewarded by identifying category leaders that are falling to attractive valuations relative to their long-term growth profile.
This brings me to Seagate Technology (NASDAQ: STX) - one of the oldest technology companies listed in the United States.
A business evolving
Seagate was founded in the 70’s when typewriters still dominated, and Apple and Microsoft were little-known start-ups. The company took off as its hard disk drives used in some very early IBM computers played a major role in the development of the PC industry.
Over the years, revenue from hard disk drives declined as technology evolved and NAND or FLASH drives used in PCs, tablets and smartphones, began to dominate market share.
But Seagate's business has evolved from being dominated by hard disk drives market for PCs, to leading mass capacity storage solutions (including cloud storage) which now generates more than 75% of Seagate’s revenue.
In Antipodes latest podcast episode, I spoke with Gianluca Romano, Executive Vice President and CFO of Seagate.
Subscribe to the podcast on Spotify here
Gianluca explained how the ongoing growth in data is driving demand for mass capacity storage.
The data is supporting very new applications like artificial intelligence, machine learning, autonomous vehicles, smart cities, smart factories. All these new applications require massive volumes of data and we are just at the beginning of the utilisation of those new applications so we will see the data creation continue to grow very rapidly in the next few years.
He also touched on the competitive dynamics at play.
The industry has consolidated in the last almost 20 years. The hard disk industry included about 15 players and now it is down to three - so there was a major consolidation. Out of those three, Seagate is a clear leader. I’m really positive for where this industry will be in the future in terms good alignment between supply and demand and what that means in terms of revenue, profitability and cash flow.
Seagate is currently priced at just 8x next year’s earnings and given the opportunity for growth in mass data storage, we see the company as a compelling pragmatic value opportunity.
Listen to the full discussion with Gianluca along with some further analysis from Graham Hay (Antipodes' Portfolio Manager of Hardware, Industrials and Commodities) in our latest podcast.
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