Comparing Price Ratios
Trends in the Data Storage Device Industry in 2013 will lead to better agility from increased storage space up or outward along with data storage growth. By 2020, forecasters are talking about storage space in "zettabytes." You may be familiar with the term "gigabyte" which appears in most computers today. Most software programs today describe themselves in megabytes of storage information needed. Some games in gigabytes. A gigabyte is like 109 powers, or 1,000,000,000 bytes of information. To put it in perspective, a zettabyte is 1021 powers. It goes in this order: megabyte; gigabyte; terabyte; exabyte, zettabyte. So expansion of storage and what a computer can store will be incredible as time progresses.
Let's take a look at three large companies in this industry and compare Price Ratios. If you were interested in investing in a stock in this industry, it would be important to try to understand how valuable a stock is. There are three ratios I use to help me get a perspective on this. Let's look at EMC Corp; Seagate Tech; and SanDisk Corp
Price to Sales Ratio
EMC Corp (EMC) 2.46
Seagate Tech (STX) 0.60
SanDisk Corp (SNDK) 1.86
If I want to know how much potential a company has for growth, I might look at the price to sales ratio. This ratio reveals to me how much an investor pays for $1.00 of the company's sales. The lower the ratio, the healthier the company is. Seagate has a commanding lead here; coming in at a third of the industry average, while EMC Corp comes in a third higher. The edge goes to Seagate on this one.
Price to Cash Flow Ratio
EMC Corp 12.0
Seagate Tech 2.3
SanDisk Corp 11.8
How much money is running through the company compared to the price where it trades is also important to me. The price to cash flow ratio tells me how much it costs me for $1.00 of the company's cash flow. The closer the ratio is to 100, the less capability the company has to do anything. At 100, it is just paying its bills. The value of the company becomes equal to the amount of money coming in and no more. Seagate destroys the competition again. While the industry average is 29.5, Seagate comes in at 2.3 while both SanDisk and EMC Corp are at or close to 12.0. Seagate has a huge edge here again at this ratio.
Price to Earnings Ratio
EMC Corp 20.3
Seagate Tech 3.3
SanDisk Corp 19.8
The last ratio I want to look at tells me how much I am paying for $1.00 of the company's earnings. This is called the price to earnings ratio. The lower the ratio, the less I have to pay for earnings. The industry average is 15.0, and both EMC Corp and SanDisk are not doing as well as the industry average. But Seagate again is far ahead of the other two with an average of 3.4. I would again give the edge to Seagate.
When it comes to valuing a company based on these three ratios, I would give Seagate Tech a far greater advantage over EMC Corp or SanDisk Corp. It takes more than just these three ratios to place long term value on a company, but these are a start.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.