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Seagate: Short-Term Bearish, Long-Term Bullish

Jozef Bystricky profile picture
Jozef Bystricky


  • Seagate shares were very volatile over the last 6 years.
  • The reason for high volatility was the decline in revenue and operating margin.
  • The decline will likely persist in the near future and therefore short-term outlook is weak.
  • On the other hand, there is a positive long-term outlook favoring the demand for storage.
  • When the company stabilizes the business, it will be a buy, in the meantime, it is just a hold.

Seagate (NASDAQ:STX) is likely to face negative pressure in the short term due to further revenue and operating margin decline. On the other hand, the opportunity for the long term is imminent stemming from favoring trends in the industry. Internet of Things, which means digitalization, data collection and the general movement to cloud, is going to create yet further demand for the data storage where HDD products are to benefit. And so, Seagate is well positioned to outperform in the long term. However, the company needs to demonstrate the ability to profit from the positive industry trends and stabilize the deteriorating business fundamentals. Steve Luczo, the CEO of the company, highlighted cautious optimism for business model stabilization, but I would wait for 2018 outlook to confirm his words.

High volatility

Seagate has been very volatile during the last six years. The shares advanced from low of $7.7 in 2011 to the peak of $69.4 in 2014. After that, it reversed the bullish momentum and declined to a bottom of $17 in 2016. Consequently, the shares reached a high of $50 in April this year.

Source: www.finance.yahoo.com

And so, the investors could see the shares increase nine-fold, decrease 75 percent, increase three-fold and decrease 25 percent to current levels in a matter of six years. These huge swings have been caused by huge volatility in underlying profitability.

Profitability swings

The revenue reached a peak of $14.9B in 2012. Since then, sales declined every year. And they are projected to decline further next year.

Source: Seagate 10k's, Analyst Projections

Source: www.finance.yahoo.com

The decline in sales had a direct impact on the decline in operating margin. Operating expenses as a percentage of revenue increased from 10.5% in 2012 to 20.2% projected for 2017.

Source: Seagate 10-K's

There is an exact inverse relationship between

This article was written by

Jozef Bystricky profile picture
passed all 3 levels in CFA program equity long investor perceiving value investing style

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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