Seagate Technology Stock: A Buy The Dip Opportunity (NASDAQ:STX)

List of shares of Seagate Technology Holdings (Description: STX) aims to be as efficient as the world trade [SSDs] the market is expected to grow at a strong rate of approximately 10.4% annually through 2030. provide a strong tail for Seagate’s business storage solutions.

Seagate is attractively priced with expected strong revenue and earnings growth, which could make the stock more profitable over the next few years. A recent sell-off in a stock may present a good buying opportunity.

Seagate’s Business Background

Seagate operates as a global provider of data storage solutions including enterprise SSDs, hard disk drives, and network attached storage drives. STX also offers SSDs and HDDs (hard disk drives), external storage solutions, and drives for PCs and laptops. Seagate’s products are specifically designed to store large amounts of energy for use in hyperscale data centers.

The company sells its products to distributors, OEMs and distributors. About 75% of Seagate’s revenue comes from OEMs. Revenue from distributors accounts for 15%, while retailers make up the remaining 10%.

Catalysts for Seagate’s Growth

Seagate is well positioned to drive growth in the global enterprise market. The company has strong demand from the global cloud market. Seagate said that this market helped drive an 18% increase in revenue for Q4 2024. STX believes that the continued growth of content creation will drive increased demand for its storage solutions going forward.

STX also increased its total margin [GM] to 31.8% in Q4 2024 over 22.7% GM from Q4 2023 and 26% GM from Q3 2024. Seagate’s operating speed also increased to 16.5% in Q4 2024, more than 5% from Q4 2023, and 92% from Q3 20. led to a significant increase in net income to 27% in Q4 2024 rather than a negative 6% share in net income from Q4 2023. Seagate suggests the improvement of its limit to support from the high limit of HDD and from cost control.

Seagate’s three priorities that they announced at the start of the fiscal year are driving current growth and could help drive future growth. Another important thing is to increase profits. The company is already showing improved profitability with its significant increase. The increased margins caused EPS to increase to $1.05 for Q4 2024, beating estimates by $0.30 or 23%. This was a significant increase over the net EPS loss of $0.18 from Q4 2023. The increased profit reflects Seagate’s success in keeping costs low. Total operating expenses as a percentage of revenue was approximately 15% in Q4 2024, which was down from 17% in Q3 2024 and 18% from Q4 2023. Continued cost discipline is I can help drive higher profits going forward.

The second issue is to manage income generation. Seagate increased operating cash flow by 99% to $434 million in Q4 2024 over Q4 2023. The increase in cash flow is driven by network expansion and cost control. It’s also driven by Seagate’s ability to capitalize on growing demand from the near-cloud market. STX had a doubling of cloud revenue nearing Q4 2024.

The company expects growth to continue through fiscal 2025. Much of this growth is to support AI-related technology. For example, large speech models for AI-powered applications will require additional HDD storage solutions, which Seagate offers. STX’s HDD solutions provide affordable storage solutions that perfectly match the need to expand hardware stacks for productive AI.

Seagate’s third priority is to strengthen its balance sheet. STX increased its cash position by 78% to $1.4 billion in Q4 2024 compared to $786 million at the end of Q4 2023. At the same time, total debt decreased to from $5.8 billion last year to the current level of $5.7 billion. . STX has room for improvement, as all liabilities are higher than all assets. STX has more than 1.2x more liabilities than total assets, giving them a negative total. The last time Seagate had positive equity was in 2022. So, I would expect STX to improve this part of the balance sheet, perhaps by being aggressive and paying down debt.

Seagate Product Strategy

Seagate has responded to that demand by launching two new high-end drives. This helps support the growing customer demand for STX while profitably expanding the shipment flow through the company’s existing HDD production. STX is increasing the volume of these drives. The advantages of these drives are: capacity up to 28 terabytes as well as solid yield, quality, and performance. The company is expanding the range of these products for the cloud, enterprise and VIA markets.

Seagate is planning to upgrade its Mosaic 4+ drives, the next generation of HAMR (heat-assisted) drives. Mosaic 4+ helps get more power by increasing the number of data bits per square inch of disk space. Mosaic 4+ offers 33% more power than the current model that Seagate has on the market today. This gives customers cost benefits (less energy consumption) and saves data center staff space while expanding AI and cloud infrastructure. Seagate expects to have a large volume of Mosaic 4+ by mid-2025.

Seagate’s Impressive Quality

Seagate trades at about 14x analysts’ expected consensus of $6.65 for FY25. STX’s financial year ends in June each year. This is lower than the hardware industry’s previous PE of 14.9x.

The most important metric in my opinion for Seagate is the PEG ratio. The reason for that is because the PEG ratio points to Seagate’s expected 3 to 5 year expected annual earnings growth of about 54%. That said, Seagate trades at a low PEG of just 0.26. This is significantly lower than the hardware industry’s PEG of 1.69.

That expected earnings growth rate appears high. However, I would indicate that it is skewed higher due to STX’s continued recovery from a loss of $2.56 per share from 2023. That dwarfs the expected EPS growth for 2025. funds as STX increases profits at a strong pace. As a result, an expectation of 54% annual EPS growth over the next 3 to 5 years looks reasonable to me.

Seagate’s low valuation leaves plenty of room for the stock to grow as the company continues its strong growth.

Seagate’s Technical Perspective

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Seagate’s daily chart above shows the stock rising from its 52-week high of $113.57. Prior to the trade, the stock was showing a bearish divergence as the price increased while the RSI and MACD indicators decreased from the May 2024 to July 2024 high. there has been a pullback now that the stock is going well. now.

The RSI (purple line in the middle of the chart) has dropped to the 30s, which is close to an oversold level (below 30). This looks like a healthy technical performance, which was driven by technology stocks and the broader market.

Traders can consider dollar price averaging within a stock so they don’t try to time the market properly. For those who would like to time the market, they can wait for the blue MACD line (at the bottom of the chart) to cross over the red line and for the histogram to change from red to green . This may indicate a possible change from a downtrend to an uptrend.

Risks for Stock

One of Seagate’s main risks is competition. Seagate competes with larger companies with more resources. These competitors include: Micron Technology (MU), Samsung (OTCPK:SSNLF), Western Digital (WDC), SK hynix (OTCPK:HXSCF), and more. One or more of Seagate’s competitors could produce a better storage solution and could take market share away from the company. These companies compete on price, storage capacity, product performance, product quality/reliability, energy consumption, data transfer rates, and more. Therefore, STX will have to stay on the cutting edge of technological development to remain competitive for these factors.

The dynamic nature of Seagate’s business requires the company to make significant investments in materials and equipment to manufacture its products. As a result, the company tends to operate with a large amount of debt (total debt minus total cash and equivalents). As of the end of Q4 2024, STX had $4.3 billion in total debt. The high level of debt could be a problem if STX’s earnings fall to the point where the company’s earnings become negative in the long term. The good news is that Seagate is consistently generating positive cash flow. STX had $918 million in operating cash flow for fiscal 2024.

Seagate’s Bottom Line Outlook

Seagate appears to have the right strategies to capitalize on the expected growth for its storage solutions. The cloud and AI markets should provide a solid long-term tailwind for the company.

STX’s strong earnings growth is likely to drive the stock higher than the broader market over the next five years. Seagate’s low valuation leaves room for the stock to continue. Traders may just need to wait for a market correction now, which should create a good buying opportunity.