Why Is Seagate Up Almost 75% In The Last 2 Years?
Seagate’s (NASDAQ: STX) stock price has risen from $31.80 in September 2017 to $55.30 in September 2019. The rise was mainly driven by a jump in the P/E multiple and net margins and a drop in the number of shares outstanding, while revenues have, in fact, dropped over this period.
View our interactive dashboard analysis- Seagate: Why Has The Stock Gained Almost 75% In The Last 2 Years?
We break down the change in Seagate’s stock into 4 factors: Stock Price = (Revenue x Margins / No. of Shares) x P/E Multiple
Total revenue has dropped 3.53% over the last 2 years on the back of slow demand growth
- Total revenue has dropped from $10.77 billion in 2017 to $10.39 billion in 2019, on the back of lower demand and overall pressure on the memory market.
- Revenue from the client compute segment, which includes HDD sales to retail customers, has been a major loser, dropping from $2.7 billion to $2.1 billion over this period.
- This has largely been due to the growing use of streaming services and the emergence of cloud storage, which has driven down demand for physical storage devices.
- However, client non-compute revenue, which includes the sale of in-device memory products, remains unaffected.
Net Margins have risen 15.65% over this period
- Net Margins have increased from 11.4% in 2017 to 13.2% in 2019.
- This growth comes on the back of successful cost-cutting initiatives, gradually cutting development and marketing expenses.
The number of shares outstanding has reduced gradually
- Number of shares has dropped from 299 million to 285 million over the past 2 years, on the back of share repurchases.
- This has played a hand in driving up EPS.
- EPS has grown from $4.12 in 2017 to $4.82 in 2019.
The P/E multiple has risen to 11.48x
- Seagate’s P/E Multiple has grown from 7.72x in 2017 to 11.48x in 2019.
- The company has managed to reduce total debt over the past 2 years, from $5.02 billion in 2017 to $4.25 billion in 2019.
- Also, the cost-cutting initiatives that are gradually driving up net margins, have helped create a positive outlook.
- Even though retail demand is expected to slow down, demand from enterprise and cloud centers is expected to grow over coming years.
- These factors have helped drive up the P/E multiple to 11.48x.
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