Zacks Industry Outlook Highlights: NetApp, Super Micro Computer and Seagate Technology

Chicago, IL – July 5, 2018 – Today, Zacks Equity Research discusses Computer - Storage Devices, including NetApp, Inc. NTAP, Super Micro Computer, Inc. SMCI and Seagate Technology PLC STX.
Industry: Computer - Storage Devices
The Computer – Storage Devices industry is witnessing an exponential rise on widespread use of streaming media, cloud storage solutions, cloud-based apps, data virtualization and other data-intensive chores.
The key driving force of the worldwide storage devices market is its increasing use in mobile devices that have now higher memory capacities. Rampant growth in the amount of data, complexity of data formats and the need to scale resources at regular intervals have compelled several companies to turn to storage devices vendors. This represents significant growth opportunity for the industry players.
As consumers’ dependence on cloud for storage purpose increases, a proportionate rise in demand for cloud-dedicated data centers is inevitable. Also, with simultaneous increase in data volumes, demand for cloud-based storage systems in data centers is likely to grow significantly.
Extensive implementations of CRM solutions, increased Internet and mobile penetration, rapidly growing media and regulatory compliance have resulted in data explosion for enterprises. Now, these enterprises are realizing the importance of storing information which, in turn should favor growth.
Banking on the rise of connected devices, the Internet of Things (IoT), virtual reality (VR), and artificial intelligence (AI), the Computer – Storage Devices industry remains a lucrative investment opportunity.
Industry Offers Solid Shareholder Returns
The Zacks Computer-Storage Devices Industry, within the broader Zacks Computer And Technology Sector, has outperformed both the S&P 500 and its own sector over the past year.
While the stocks in this industry have collectively gained 27.5%, the Zacks S&P 500 Composite and Zacks Computer And Technology Sector have rallied 12.5% and 19.2%, respectively.
The secular growth of digital data and higher demand for storage especially for SSDs, contributed to the performance of both the sector and the S&P 500.
Sector Stocks Trading Cheap
Owing to the strong fundamentals of the industry over the past year, the valuation looks attractive. One might get a good sense of the industry’s relative valuation by looking at its price-to-earnings ratio (P/E), which is the most appropriate multiple for valuing Computer – Storage Devices stocks because their earnings are effective in gauging performance.    
Generally, the price of a stock rallies on a rise in earnings. As forecasts for expected earnings move higher, demand for the stock should drive its price. If the P/E of a stock is rising steadily, it means that investors are pinning their hopes on the company’s inherent strength.
This ratio essentially measures a stock’s current market value relative to its earnings performance. Investors believe that the lower the P/E, the higher will be the value of the stock.
The industry currently has a trailing 12-month P/E ratio of 11.58, near the lowest level over the past year and below the median level of 12.15. Clearly, there is plenty of upside left.
The space also looks quite inexpensive when compared with the market at large, as the trailing 12-month P/E ratio for the S&P 500 is 19.9 and the median level is 20.17.
Outperformance to Continue on Robust Earnings Outlook
Robust market adoption of cloud computing, big data, IoT, auto, connected devices, VR, and AI will continue to drive the industry and have encouraged many companies to raise their projections for the current fiscal year. This optimism is likely to help Computer – Storage Devices stocks generate positive shareholder returns in the near future.
But what really matters to investors is whether this group has the potential to perform better than the broader market in the quarters ahead. The earlier valuation discussion shows that market participants have been willing to pay up for these stocks already, potentially limiting further upside from current levels.
One reliable measure that can help investors understand the industry’s prospects for a solid price performance going forward is its earnings outlook. Empirical research shows that earnings outlook for the industry, a reflection of the earnings revisions trend for the constituent companies, has a direct bearing on its stock market performance.