Long-established in the Hardware industry, Seagate Technology Holdings PLC (STX, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a decline of 2.1%, juxtaposed with a three-month change of 5.57%. Fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Seagate Technology Holdings PLC.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- 1. Financial strength rank: 3/10
- 2. Profitability rank: 7/10
- 3. Growth rank: 3/10
- 4. GF Value rank: 3/10
- 5. Momentum rank: 8/10
Based on the above method, GuruFocus assigned Seagate Technology Holdings PLC the GF Score of 68 out of 100, which signals poor future outperformance potential.
Seagate Technology Holdings PLC: A Snapshot
Seagate Technology Holdings PLC, with a market cap of $13.3 billion, is a leading supplier of hard disk drives for data storage to the enterprise and consumer markets. It forms a practical duopoly in the market with its chief rival, Western Digital; they are both vertically integrated. The company reported sales of $7.38 billion and an operating margin of 0.81. However, the company's recent performance and financial metrics suggest potential challenges ahead.
Financial Strength Analysis
Seagate Technology Holdings PLC's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0.19 positions it worse than 99.12% of 1591 companies in the Hardware industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Scoreis just 0.27, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.14 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 17.68, which is above Joel Tillinghast's warning level of 4 and is worse than 95.66% of 1658 companies in the Hardware industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where Seagate Technology Holdings PLC seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -3.5 per year over the past three years, which underperforms worse than 71.98% of 2313 companies in the Hardware industry. Stagnating revenues may pose concerns in a fast-evolving market.
Over the past five years, Seagate Technology Holdings PLC has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -36, while the five-year growth rate is at -17.1. These figures underscore potential challenges in the company's profitability. Lastly, Seagate Technology Holdings PLC predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights Seagate Technology Holdings PLC's unparalleled position for potential underperformance. While the company has a strong market presence, its financial health and growth prospects raise concerns about its ability to outperform in the future. Therefore, investors should exercise caution and conduct thorough research before making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
