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Is Seagate Technology a Great Stock for Value Investors?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn't want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let's put Seagate Technology plcSTX ) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock's current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Seagate has a trailing twelve months PE ratio of 13.8, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.9. If we focus on the long-term PE trend, the current level puts Seagate's current PE ratio fairly above its midpoint. Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.

Further, the stock's PE also compares favorably with the Zacks Categorized Computer-Storage Devices industry's trailing twelve months PE ratio, which stands at 20.3. At the very least, this indicates that the stock is highly undervalued right now, compared to its peers.

We should also point out that Seagate has a forward PE ratio (price relative to this year's earnings) of just 9.58, so it is fair to say that a slightly more value-oriented path may be ahead for Seagate stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock's price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Seagate has a P/S ratio of about 1.0. This is a lower than the S&P 500 average, which comes in at 3.0 right now. Also, as we can see in the chart below, this is a bit below the highs for this stock in particular over the past few years.

If anything, STX is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading-at least compared to historical norms.

Broad Value Outlook

In aggregate, Seagate currently has a Zacks Value Style Score of 'A', putting it into the top 20% of all stocks we cover from this look. This makes Seagate a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio (another great indicator of value) comes in at 5.67, which is far better than the industry average of 6.79. Clearly, STX is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Seagate might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of 'A' and a Momentum score of 'C'. This gives STX a Zacks VGM score-or its overarching fundamental grade-of 'A'. (You can read more about the Zacks Style Scores here >> )

Meanwhile, the company's recent estimate revision trend has been favorable. Both the current quarter and the current year have seen two estimates go higher in the past sixty days compared to none lower in the same time period. This has had just an impact on the consensus estimate though as the current quarter consensus estimate has inched up 0.9% in the past two months, while the full year estimate has also inched up by 0.5%.

Seagate Technology PLC Price and Consensus

Seagate Technology PLC Price and Consensus | Seagate Technology PLC Quote

This positive trend is the reason why the stock has just a Zacks Rank #1 (Strong Buy) and why we are looking for in-line performance from the company in the near term.

Bottom Line

Seagate Technolgy is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front.

Boasting a good industry rank (top 10%) and a solid Zacks Rank, the company deserves attention right now. So, it might pay for value investors to delve deeper into the company's prospects, as fundamentals indicate that this stock could be a compelling pick.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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