Seagate Technology Holdings PLC (STX, Financial) experienced a daily loss of -2.2% and a 3-month gain of 6.58%, with a reported Loss Per Share of 2.55. This raises the question: Is the stock modestly overvalued? To answer this, we delve into an in-depth valuation analysis of Seagate Technology Holdings PLC (STX). We invite you to continue reading for a comprehensive understanding of the company's value.
A Snapshot of Seagate Technology Holdings PLC
Seagate Technology Holdings PLC is a leading supplier of hard disk drives for data storage to enterprise and consumer markets. It forms a practical duopoly in the market with its chief rival, Western Digital. Both companies are vertically integrated. As of September 11, 2023, Seagate Technology Holdings PLC (STX, Financial) has a market cap of $13.30 billion and a stock price of $63.93 per share. This is compared to its GF Value of $55.56, suggesting that the stock is modestly overvalued.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this analysis, Seagate Technology Holdings PLC (STX, Financial) is estimated to be modestly overvalued. This suggests that the long-term return of its stock is likely to be lower than its business growth.
Assessing Financial Strength
Before investing in a company's stock, it is crucial to check its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Seagate Technology Holdings PLC has a cash-to-debt ratio of 0.14, which is worse than 91.91% of 2350 companies in the Hardware industry. The overall financial strength of Seagate Technology Holdings PLC is 3 out of 10, indicating that its financial strength is poor.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Seagate Technology Holdings PLC has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $7.40 billion and a Loss Per Share of $2.55. Its operating margin of 0.81% is worse than 64.38% of 2420 companies in the Hardware industry. Overall, GuruFocus ranks Seagate Technology Holdings PLC's profitability as fair.
Company growth is a crucial factor in valuation. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Seagate Technology Holdings PLC is -3.5%, which ranks worse than 71.98% of 2313 companies in the Hardware industry. The 3-year average EBITDA growth is -36%, which ranks worse than 94.32% of 1938 companies in the Hardware industry.
Evaluating ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Seagate Technology Holdings PLC's ROIC was 1.17 while its WACC came in at 9.04.
Conclusion
In conclusion, the stock of Seagate Technology Holdings PLC (STX, Financial) is estimated to be modestly overvalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 94.32% of 1938 companies in the Hardware industry. To learn more about Seagate Technology Holdings PLC stock, you can check out its 30-Year Financials here.
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