Why Seagate Stock Sank 7.7% Today

What happened

Shares of Seagate Technology (NASDAQ: STX) closed down 7.7% on Tuesday after falling as much as 9.8% earlier in the day. The most likely reason for the sell-off: a downgrade from analysts at Evercore ISI.

Continue Reading Below

In an echo of the Goldman Sachs downgrade early last month, this morning, StreetInsider.com reports that Evercore has likewise cut its rating on Seagate stock -- to "underperform," and with a price target of $45 that implies the stock still has another 9% to fall.

So what

Last month, Goldman warned investors that the solid-state disk drive market was in a state of oversupply, with weak pricing that could create "secular challenges" for companies like Seagate that sell not only SSDs, but hard disk drives (HDDs) as well.

That note caused a brief panic among Seagate investors, driving down the stock price -- but it's since recovered to prices even higher than Seagate stock enjoyed before Goldman issued its warning. In today's note, Evercore highlights this "complacency around NAND pricing," and warns that the "increasing HDD cannibalization" risk has not gone away -- and that computer memory shoppers may choose to buy cheaper SSDs instead of HDDs.

Now what

Looking forward, Evercore further warns that Seagate investors can expect to see "a headwind exiting CY18 and into 2019" as these predictions bear fruit, with the stock experiencing a "flattish at best" top line, and gross margins on those top-line revenues "heading lower," leading to lower profits on the bottom line.

Investors aren't waiting around to see if Evercore is right about that; they're selling Seagate stock in droves. Then again, they did the same thing in August after Goldman's downgrade. Could be, this sell-off will prove just as short-lived as the last one.

10 stocks we like better than Seagate TechnologyWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Seagate Technology wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.