Mention hard disk drives to investors and you get a smirk. The iPad is supposed to bury all those spinning disks with its ever increasing storage capacity. Smartphones in your pocket can store more than laptops of only a few years ago. Isn’t the storage revolution just around the corner for PCs as well?

I used to be in that camp. It was obvious to me that the onslaught of solid state drives (SSDs), which use a technology called NAND flash, would put the hard disk drive (HDD) manufacturers quickly out of business. Until I looked at the numbers.

The two largest HDD manufacturers, Western Digital and Seagate, have been improving their profit margins over the past ten years. They boast eye popping returns on capital. And they don’t seem to notice the iPad: Western Digital’s revenues have grown at 22% compounded over the past 5 years. These are not the signs of a dying industry.

Yet the perception of imminent death has left the stocks trading at distressed multiples. Western Digital – which I like better for its debt-free balance sheet and more stable margins – generates $3-4 in free cash flow per year and has $12.30 of net cash per share. Yet as recently as early March, the shares sold for $30, or 4-6x free cash flow.