Western Digital Corp (WDC, Financial) recently reported a daily gain of 5.56%, and a 3-month gain of 19.3%, despite a Loss Per Share of 5.41. However, the question that arises is whether the stock is significantly overvalued. This article delves into an in-depth valuation analysis of Western Digital (WDC), providing valuable insights for potential investors.
Company Overview
Western Digital is a leading supplier of data storage solutions, including both hard disk drives and solid-state drives. It 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. Despite a current stock price of $46.36, the company's estimated fair value stands at $33.98, suggesting a significant overvaluation. This article aims to provide a comprehensive analysis of Western Digital's value, integrating financial assessment with essential company details.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value. If a stock's price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return is expected to be higher.
For Western Digital (WDC, Financial), the stock appears to be significantly overvalued according to the GF Value calculation. With a current price of $46.36 per share and a market cap of $14.90 billion, Western Digital's future return is likely to be much lower than its future business growth due to its overvaluation.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Western Digital has a cash-to-debt ratio of 0.29, ranking worse than 83.29% of 2376 companies in the Hardware industry. Based on this, GuruFocus ranks Western Digital's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially if they have demonstrated consistent profitability over the long term. Western Digital has been profitable 7 years over the past 10 years. However, its operating margin of -8.87% is worse than 80.56% of 2448 companies in the Hardware industry, suggesting fair profitability .
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders. Unfortunately, Western Digital's growth ranks worse than 84.47% of 2338 companies in the Hardware industry, with a 3-year average annual revenue growth rate of -11.6%.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Western Digital's ROIC is -6.27, and its WACC is 10.35.
Conclusion
In summary, Western Digital's stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is also fair. However, its growth ranks worse than 0% of 1964 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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