Can Seagate Extend This Bull Run?

With shares of Seagate (NASDAQ:STX) trading around $36, is STX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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T = Trends for a Stock’s Movement

Seagate designs, manufactures, markets, and sells hard disk drives for enterprise storage, client computers, and client non-computer market applications worldwide. The company’’s products are used in enterprise servers, mainframes, workstations, desktop and notebook computers, digital video recorders, gaming consoles, personal data backup systems, portable external storage systems, and digital media systems. It also provides data storage services, including online backup, data protection, and recovery solutions for small and medium-sized businesses. Seagate is a major player in the heavily demanded storage industry so look for the company to continue to see profits for years to come.

Head on over to the next page to explore the technical landscape of Seagate’s stock…

T = Technicals on the Stock Chart are Strong

Seagate’s long-term price chart shows a stock that has made major moves. Currently, the stock is trading near all-time highs. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Seagate is trading above its rising key averages which signal bullish price action in the near-term.

STX

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Seagate options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Seagate Options

40.48%

36%

33%

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What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Flat

Average

May Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a good amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Seagate’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Seagate look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

1.56%

343.75%

826.92%

1080.95%

Revenue Growth (Y-O-Y)

14.8%

32.76%

56.75%

65.12%

Earnings Reaction

-9.35%

3.29%

-1.35%

3.81%

Seagate has seen increasing earnings and revenue over the last four quarters. From these figures, the markets have generally been pleased about Seagate’s last four earnings announcements, however, more was expected in the latest report.

P = Average Relative Performance Versus Peers and Sector

How has Seagate stock done relative to its peers, Western Digital (NASDAQ:WDC), SanDisk (NASDAQ:SNDK), OCZ Technology (NYSE:OCZ), and sector?

Seagate

Western Digital

SanDisk

OCZ Technology

Sector

Year-to-Date Return

12.77%

14.64%

24.14%

-14.33%

4.11%

Seagate has been an average performer relative to its peers and sector, year-to-date.

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Conclusion

Seagate is a global data storage giant that continues to make moves that will keep it competitive in the technology space. The stock is in a strong uptrend on support by excellent earnings and revenue growth over the last four quarters. However, investors expected more in the latest report. Relative to its peers and sector, Seagate has been an average performer. Look for Seagate continue to OUTPERFORM.

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