Long-established in the Hardware industry, Western Digital Corp (WDC, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 2.23%, juxtaposed with a three-month change of 23.74%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Western Digital Corp.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 5/10
- Profitability rank: 6/10
- Growth rank: 2/10
- GF Value rank: 1/10
- Momentum rank: 10/10
Based on the above method, GuruFocus assigned Western Digital Corp the GF Score of 61 out of 100, which signals poor future outperformance potential.
Company Snapshot: Western Digital Corp
Western Digital Corp, with a market cap of $14.9 billion, is a leading vertically integrated supplier of data storage solutions, spanning both hard disk drives and solid-state drives. In the HDD market, it forms a practical duopoly with Seagate, and it is the largest global producer of NAND flash chips for SSDs in a joint venture with competitor Kioxia. Despite its significant presence in the industry, the company's operating margin stands at -8.87%, indicating potential challenges in profitability.
Financial Strength Analysis
Western Digital Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0 positions it worse than 0% of 1607 companies in the Hardware industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Score is just 1.57, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.29 indicates a struggle in handling existing debt levels.
Growth Prospects
A lack of significant growth is another area where Western Digital Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -11.6 per year over the past three years, which underperforms worse than 84.65% of 2326 companies in the Hardware industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Western Digital Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Western Digital Corp has a strong presence in the hardware industry, its financial health and growth prospects raise concerns about its ability to outperform in the future. Therefore, investors should exercise caution and conduct thorough research before investing in this stock.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
