The ongoing U.S.-China tariff war appears not to be affecting investors' strong bullish sentiment on Western Digital (WDC, Financial). Instead, investors have rewarded the disk drive manufacturer although it reported a decline in revenue for this fiscal year. In fact, its shares have reached 52-week highs yet again.
Western Digital registered a 51% decline in revenue for its fiscal year 2019 and missed earnings expectations for its recent quarter. The company also expects no earnings for its next quarter but has said that business conditions have already reached a bottom.
"We are seeing signs of improving conditions in the flash market and believe that it has reached a cyclical trough," CEO Steve Milligan said. "With continuing expectations for a positive demand environment, a robust product portfolio and expanding customer engagements, we expect to deliver improving financial results as we move through fiscal 2020."
There is no slowing down the risk-on sentiment on Western Digital's stock; it is up 6% since the earnings announcement. Year to date, it gained 55% compared to the S&P 500 index’s 16.7%.
Aside from its difficulty delivering any business growth this year, Western Digital has major exposure (42% of revenue) to China and Hong Kong. While China is on track to deliver slightly slower economic growth this year, Hong Kong is expected to face an economic recession brought on by continuous protests. The recent full withdrawal of the extradition bill that sparked the protests should help tame protestors' economically harmful behavior. But there are still a few more things the upset community wants to see changed.Â
Now that Western Digital has told shareholders that it sees the market bottoming, investors should hope that the situation in Hong Kong cools down for the rest of the year, limiting the negative affect on the company’s overall declining business.
Maybe more conservative investors should start heeding financial figures and cash in some gains rather than be content with verbal assurances.
Disclosure: No shares in Western Digital.
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