Will Seagate stock return to its pre-inflation shock level?

seagate stock (NASDAQ
NDAQ
: STX
stx
) is currently trading at $64 per share, which is 18% below levels seen in March 2021, and appears reasonably priced. STX stock was trading at around $71 in early June 2022, just before the Fed started raising rates, and is now down 10% from that level, compared with the S&P 500’s 19% gain during the period. This poor performance of Seagate stock can be attributed to declining revenues in recent quarters due to weak consumer demand and high inflation.

Interestingly, STX stock has had a Sharpe ratio 0.3 Since the beginning of 2017, which is less 0.6 for the S&P 500 index over the same period. It is compared to Sharp of 1.3 For Trefis Reinforced Value Portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

A return to pre-inflation shock levels above $116 means STX stock would have to gain more than 80% from here, and we don’t think that will materialize anytime soon. We find that STX stock is fully valued at its current price of $64. we guess Seagate’s evaluation That would be about $64 per share, which would be in line with its current market price. This is because sales are likely to remain low in the near term.

Our detailed analysis of Seagate’s reverse blow after inflation This reflects trends in the company’s stock during the turbulent market conditions seen in 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 inflation shock

Timeline of inflation shocks so far:

• 2020 – early 2021: Increase in money supply to mitigate the impact of lockdowns led to higher demand for goods; Manufacturers are unable to keep up.
• Early 2021: Shipping disruptions and labor shortages due to the coronavirus pandemic are affecting supplies.
• April 2021: Inflation rate crosses 4% and increases rapidly.
• Early 2022: Energy and food prices rise due to Russian invasion of Ukraine. The Fed begins its rate hike process.
• June 2022: Inflation levels reach 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from its peak.
• July-September 2022: The Fed raises interest rates aggressively – resulting in an initial correction in the S&P 500 followed by another sharp decline.
• From October 2022: Fed continues rate hike process; Improving market sentiment helped the S&P500 recoup some of its losses.

By contrast, here’s how STX stock and the broader market performed during the 2007/2008 crisis.

Timeline of the 2007–08 crisis

• 10/1/2007: Estimated pre-crisis peak in the S&P 500 index
• 9/1/2008 – 10/1/2008: Market decline accelerates in line with Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Estimated bottom of the S&P 500 index
• 12/31/2009: Initial recovery to levels before rapid decline (circa 9/1/2008)

Seagate and S&P 500 performance during the 2007–08 crisis

STX stock declined from approximately $27 in September 2007 (pre-crisis peak) to $4 in March 2009 (as the market bottomed), meaning it lost more than 80% of its pre-crisis value. Went. After the 2008 crisis it reached a level of around $18 in early 2010, increasing almost 4-fold between March 2009 and January 2010. The S&P 500 index saw a 51% decline, falling from a high of 1,540 in September 2007 to 757 in March 2009. After this, between March 2009 and January 2010, it increased by 48% to the level of 1,124.

Seagate’s fundamentals in recent years

Seagate’s revenue falling from $10.5 billion in fiscal 2020 (fiscal year ending June) to $7.4 billion in fiscal 2023 due to adverse macroeconomic conditions and storage price decline. The company expects volumes to ramp up in early 2024 (calendar). Although the company has seen its sales decline in recent years, its operating margin improved from 12.4% in 2020 to 16.9% in 2022, before falling to -2.1% in 2023 due to price declines and lower production levels. Our Seagate Operating Income Comparison There are more details in the dashboard. Its earnings per share in 2023 were $2.56 as reported, compared to $3.83 in 2020.

Does Seagate have enough cash to meet its obligations through the ongoing inflation shock?

Seagate’s total debt increased from $4.2 billion in 2020 to $5.5 billion in 2023, while its cash declined from about $1.7 billion to $0.8 billion over the same period. The company also expects to generate $0.9 billion in cash flow from operations in 2023. Seagate has good liquidity and appears to be in a comfortable position to meet its near-term obligations.

conclusion

With the Fed’s efforts to control runaway inflation rates helping market sentiment, we believe Seagate stock has the potential for some gains once fears of a potential recession fade away. That said, adverse macroeconomic factors, storage price declines and low demand are potential risk factors to achieving these benefits.

While STX stock appears to be fully valued, it is useful to look at how Seagate partner Fares matter on metrics. You’ll find other valuable comparisons for companies in different industries here peer comparison,

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