On October 26, 2023, Western Digital Corp (WDC, Financial) experienced a daily loss of 9.29%, contributing to a 3-month loss of 1.59%. The company reported a Loss Per Share of 5.41. Despite these figures, the question remains: is Western Digital (WDC) modestly overvalued? This article aims to provide a comprehensive analysis of the company's valuation, highlighting its financial strength, profitability, and growth prospects.
Company Introduction
Western Digital is a leading vertically integrated supplier of data storage solutions, including both hard disk drives and solid-state drives. With a market cap of $12.40 billion, the company forms a practical duopoly with Seagate in the HDD market and is the largest global producer of NAND flash chips for SSDs in a joint venture with competitor Kioxia. Western Digital's stock price currently stands at $38.26, while its fair value (GF Value) is estimated at $33.9, suggesting that the stock might be modestly overvalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This measure is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
According to our valuation method, Western Digital (WDC, Financial) appears to be modestly overvalued. The GF Value estimates the stock's fair value by considering historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns.
Given that Western Digital is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Western Digital's cash-to-debt ratio stands at 0.29, ranking worse than 83.35% of 2367 companies in the Hardware industry. The overall financial strength of Western Digital is 5 out of 10, indicating fair financial strength.
Profitability and Growth
Consistently profitable companies offer less risk to investors. Western Digital has been profitable 7 out of the past 10 years. Over the past twelve months, the company had a revenue of $12.30 billion and a Loss Per Share of $5.41. Its operating margin is -8.87%, ranking worse than 80.71% of 2447 companies in the Hardware industry. Overall, Western Digital's profitability is ranked 6 out of 10, indicating fair profitability.
Growth is a significant factor in a company's valuation. Western Digital's 3-year average revenue growth rate is worse than 84.73% of 2325 companies in the Hardware industry. The company's 3-year average EBITDA growth rate is 0%, ranking worse than all 1955 companies in the Hardware industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) with the weighted average cost of capital (WACC). Western Digital's ROIC of -6.27 and WACC of 10.83 suggest that the company may not be generating adequate returns relative to its cost of capital.
Conclusion
Overall, Western Digital (WDC, Financial) stock appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than all 1955 companies in the Hardware industry. To learn more about Western Digital stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
