Comparing Seagate, Western Digital and Quantum, using first call and 10/31/97 closing prices SEG's PE is 23.4, WDC's PE is 9.5 and QNTM's PE is 12.5. The closing prices are SEG $27 1/8, WDC $ 30 and QNTM 31 5/8. The most recent actual fiscal year earnings and the next two annual estimates are SEG 3.05(A), 1.31(E) and 2.67(E); WDC 2.85(A), 3.38(E) and 4.10(E); QNTM 1.03(A), 2.67(E)and 3.29(E). The PEG based on 1998 calculated mean is SEG .58, WDC .40 and QNTM .47. The PE's on the next two years estimates are SEG 20.71 and 10; WDC 8.87 and 7.32; QNTM 11.84 and 9.61. I have not calculate the price to sales ratio which is a good value oriented tool (IMO).
Respective of current market conditions and volatility and considering these stocks historically trade with PE's in the mid teens (considering book value per share and relative multiples), it appears that SEG is still overvalued and WDC and QNTM are undervalued.
They are all great companies with great futures. You can look at each company and discuss the products and the technical advances. However it appears that SEG still has some hot air in it while WDC and QNTM are going to heat up.
A doubling would be great but I don't see it for SEG. WDC and QNTM do have the upside potential. Sometimes being the leader in the industry is not the best thing. When you have problems they tend to be bigger and SEG currently appears to be experiencing big problems. From what I have read it seems SEG still has situations looming in the background which should hopefully pan out and finish before year end. The situations could put more strain on the market price. WDC and QNTM appear to have minimum downside potential and less risk compared to SEG.
What happened in summer 1996 was in 1996, which is not an indicator of what will or may happen in the last quarter of 1997. This last week is a great analogy of history repeating itself. {Thank your deity (and I say that with respect) of choice that the crash of 87 does not occur in the same magnitude.} A move to the upside would be great, but the numbers don't currently lead to this situation. The downside appears to be more realistic for SEG. I would not be surprised to see it trade at a current PE similar to WDC's (9.5) or QNTM's (12.5).
IMHO |
