Western Digital Corp (WDC, Financial) recently saw a daily gain of 2.97%, with a 17.54% gain over the last three months. However, the company reported a Loss Per Share of 5.41. Given these figures, the question arises: is Western Digital significantly overvalued? In this article, we delve into the valuation analysis of Western Digital to provide a comprehensive understanding of its intrinsic value. Read on to discover more.
Company Introduction
Western Digital is a leading vertically integrated supplier of data storage solutions. The company spans both hard disk drives and solid-state drives markets, forming a practical duopoly with Seagate in the HDD market. It is also the largest global producer of NAND flash chips for SSDs, in a joint venture with competitor Kioxia. Despite a current stock price of $46.64, the GF Value, an estimation of fair value, stands at $33.98, suggesting that the stock may be significantly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Based on these factors, Western Digital's stock appears to be significantly overvalued. This implies that its long-term return is likely to be much lower than its future business growth.
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Financial Strength Analysis
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing its shares. In terms of the cash-to-debt ratio, Western Digital ranks worse than 83.27% of 2361 companies in the Hardware industry, with a ratio of 0.29. This places the overall financial strength of Western Digital at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Western Digital has been profitable 7 times over the past 10 years. However, with an operating margin of -8.87%, it ranks worse than 80.69% of 2444 companies in the Hardware industry. This places the overall profitability of Western Digital at 6 out of 10, indicating fair profitability.
As for growth, Western Digital's 3-year average annual revenue growth rate is -11.6%, which ranks worse than 84.65% of 2326 companies in the Hardware industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 1956 companies in the same industry.
ROIC vs WACC
Another measure of a company's profitability is the comparison of its return on invested capital (ROIC) and the weighted cost of capital (WACC). The ROIC of Western Digital for the past 12 months is -6.27, while its WACC is 10.68.
Conclusion
In conclusion, Western Digital's stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 0% of 1956 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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