Is Seagate Heading South?

With shares of Seagate Technology Public Limited Company (NASDAQ:STX) trading at around $31.96, is CRM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Before we get to potential catalysts for the stock price, check out the following 0:56 video about Seagate. If you’re not familiar with the company, it will give you a good idea about what Seagate does. Pay careful attention to the icons. This will give you an idea of Seagate’s reach.

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Some people love Seagate; others hate Seagate. This is normal throughout this industry. What we needed to determine was which party’s opinion is more justifiable. Luckily, this was easy. We looked at the customer ratings for all Seagate products. Collectively, customer ratings are well above average. Therefore, those who love Seagate have a more justifiable opinion, but that doesn’t necessarily mean the stock is ripe for the picking.

If you’d like to make a bullish argument, then you should focus on certain numbers. For example, Seagate is currently trading at just four times earnings, which is well below the industry average of 21 times earnings. Margins are strong. ROE is 101.19 percent. Operating cash flow is $4.36 billion. Levered free cash flow is $2.55 billion. On the other hand, the shorts are lurking, considering the fact that there is a 9.70 percent short position on the stock. And there are more analysts on the Sell side than the Buy side. That said, the average price target is $34.18. If you were to base your opinion on these numbers, then you might end up more confused than a ballet dancer in a mosh pit.

At the current time, Seagate dominates the HDD market. However, if Seagate would like to see continued success, then it needs innovation and/or growth through acquisitions. This story really comes down to the present vs. the future. If you’re bullish, then you’re most likely looking at the present. If you’re bearish, then you’re most likely focused on potential problems in the future. But Seagate is well aware of their situation, and admitting you have a problem is always the first step to recovery. There really isn’t anything to recover from yet. It’s more like a Schwarzenegger science fiction movie where a future recovery is avoided because it isn’t necessary. One such step Seagate has taken is the Seagate Wireless Plus, which can connect up to eight smartphones or tablets, store 500 movies, and has 10 hours of battery life.

Let’s take a look at some important numbers prior to forming an opinion on this stock…