The stock of Western Digital Corp (WDC, Financial) has shown a daily gain of 8.96%, and a 3-month gain of 2.31%. However, it has also reported a Loss Per Share of 5.41. The question arises: is the stock modestly overvalued? This article aims to answer this question by providing an in-depth valuation analysis of Western Digital. So, let's delve into the company's financials and market performance.
About Western Digital Corp (WDC, Financial)
Western Digital is a leading vertically integrated supplier of data storage solutions, spanning 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.
As of October 30, 2023, Western Digital's stock price stands at $42.46, while its fair value (GF Value) is estimated at $33.9. This suggests that the stock might be modestly overvalued. The following analysis will provide a detailed examination of Western Digital's value, integrating financial assessment with essential company details.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. This value line provides an overview of the fair value that the stock should be traded at.
According to the GF Value, Western Digital appears to be modestly overvalued. This is due to the stock's current price of $42.46 per share being above the GF Value Line. As a result, the long-term return of Western Digital's stock is likely to be lower than its business growth.
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Financial Strength of Western Digital
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to review the financial strength of a company before deciding to buy its stock. Western Digital has a cash-to-debt ratio of 0.29, ranking worse than 83.33% of 2369 companies in the Hardware industry. GuruFocus ranks Western Digital's overall financial strength at 5 out of 10, indicating that its financial strength is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Western Digital has been profitable 7 over the past 10 years. However, its operating margin is -8.87%, ranking worse than 80.65% of 2449 companies in the Hardware industry. Overall, the profitability of Western Digital is ranked 6 out of 10, indicating fair profitability.
Growth is a vital factor in the valuation of a company. The 3-year average annual revenue growth of Western Digital is -11.6%, ranking worse than 84.74% of 2327 companies in the Hardware industry. The 3-year average EBITDA growth rate is 0%, ranking worse than 0% of 1956 companies in the Hardware industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. Over the past 12 months, Western Digital's ROIC was -6.27, while its WACC came in at 10.58, suggesting the company might not be creating value for shareholders.
Conclusion
In conclusion, Western Digital appears to be modestly overvalued. While the company's financial condition and profitability are fair, its growth ranks worse than many companies in the Hardware industry. For more details about Western Digital's financials, 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.
