Sometimes it pays to do some “meta-analysis.” That’s when you analyze the analysts that follow a company. Often times, these analysts tend to think in cautious terms, and look to the past to make assessments about the future. As a result, they can overlook powerful industry changes that render the past less relevant. That surely appears to be the case with Seagate Technology (NYSE: STX), a maker of high-capacity disk drives for desktop and laptop computers. In recent quarters, the company has staged a remarkable turnaround. But each time analysts parse the data, they raise their estimates only slightly.

In the case of Seagate, analysts are making one simple flawed assumption. In years past, the hard disk drive industry always saw price cuts as leading players fought for market share. Not this time. The industry is running flat out to meet demand, so pricing remains stable, instead of dropping -5% to -10% every quarter, as some had been expecting. For Seagate, that means that sales, gross margins and net income all keep coming in ahead of plan.

In times of slow demand, gross margins can fall to 10%, or even lower, as factories throttle back output and customers demand price cuts. When times are good, gross margins typically approach 25%, which can be sustained even as prices fall, as manufacturers keep taking costs out of the production process. With prices stable this time around, gross margins are starting to hit record levels – nearly 30% in the most recent quarter.

It helps that Seagate focuses on the high-end of the market, producing drives that can hold 500 gigabytes or even a terabyte of data. Rival Western Digital (NYSE: WDC) produces lower-capacity drives that are more likely to feel pricing pressure.

It’s also important to note that these impressive results are coming even as large companies have yet to embark on a major upgrade of their computer systems, as often happens after an economic downturn. The recently released Windows 7 software upgrade from Microsoft (Nasdaq: MSFT) has many expecting that “enterprise spending cycle” to finally kick in during the upcoming quarters. That would coincide with additional manufacturing capacity that Seagate is starting to add. In the fiscal year that begins July 1, Seagate should possess roughly 10% more capacity. (Right now, the company’s factories are already operating near capacity). The new capacity should help Seagate produce more single-platter drives, which carry higher profit margins.

Since the start of the year, shares of Seagate have only modestly risen. With rising profit forecasts, that means the P/E ratio on projected profits is coming down. Per share profits for fiscal (June) 2011 look set to reach about $4, meaning shares trade for about five times that forecast. (The current fiscal 2011 consensus estimate of $3.62 could be too low and should rise in coming weeks as April quarter results are digested).

This is a very cyclical business, so a high price-to-earnings ratio (P/E) is never warranted. But the stock has typically traded up to about 10 times mid-cycle profits. (P/C spending cycles typically last several years, and this one could stretch out into calendar 2012 or 2103). By that math, shares could hit $40, or roughly +100% higher than current levels. Even if shares garner a more modest P/E ratio of 7 or 8 on the fiscal 2011 forecast, then shares still have +50% upside.

A key catalyst for the stock is a strengthening balance sheet. Right now the company is sitting on about $700 million in net cash (cash minus debt). Yet the company is generating roughly $500 million in free cash flow every quarter. That has led management to start buying back stock. And a dividend may be coming soon. The company eliminated the dividend in 2009, but expectations are building that a new dividend will be issued in coming quarters.

Add it all up: rising profits forecasts, a new stock buyback, an increasingly likely dividend, and gross margins that exceed past cycles, and you wonder why this stock is stuck with a P/E ratio of just five times projected fiscal 2011 profits. As analysts start to look farther into the future, that P/E should start to build.