Will Western Digital Stock See Higher Levels After A 20% Rise This Year?

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Western Digital

Despite a 19% rise this year, Western Digital stock (NYSE: WDC) looks like it can see higher levels. Western Digital stock has risen from $31 in early January to $38 now. This marks an outperformance with the 7% return for the broader S&P500 index. Looking at a slightly longer term, WDC stock is down 42% from levels seen in late 2021. This can be attributed to 1. the company’s P/S ratio, which fell 42% to 0.7x trailing revenues from 1.2x in 2021, 2. its average shares outstanding rising 3.5% to 319 million, partly offset by 2. a 3.3% rise in Western Digital revenue to $17.5 billion. Our interactive dashboard, Why Western Digital Stock Moved, has more details.

Western Digital’s sales grew at an average annual rate of 4.4% to $18.8 billion in fiscal 2022, compared to $16.6 billion in fiscal 2019, partly benefiting from a rise in cloud storage and gaming demand. However, the company’s sales were down 31% to $6.8 billion for the six months period ending December 2022. This can be attributed to weak consumer demand and higher inflation. Total smartphone shipments plunged 18% y-o-y in Q4 2022, and the metric is expected to decline in the low single-digits in 2023, impacting the demand for storage. Total revenue is expected to fall over 30% in fiscal 2023 due to weak consumer demand, high inflation, and economic uncertainties. However, consumer demand will likely gain traction in 2024, with sales expected to rise in the high teens.

Western Digital’s operating margin rose from 3.4% in fiscal 2019 to 14.3% in fiscal 2022. However, the figure stood at 8.7% for the last twelve months period. Our Western Digital Operating Income Comparison dashboard has more details. Looking at valuation, we find that WDC stock has more room for growth. At its current level of $38, it is trading at 0.7x its TTM revenues, compared to the last five-year average of about 0.9x. Our Western Digital (WDC) Valuation Ratios Comparison has more details. We estimate Western Digital’s Valuation to be $44 per share, about 17% above the current market price, representing an 0.8x P/S multiple based on TTM revenues. We have assigned a slightly lower valuation multiple than the historical average owing to near-term headwinds for the storage companies.

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While WDC stock looks like it has more room for growth, it is helpful to see how Western Digital’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for F5 vs. Target.

With inflation rising and the Fed raising interest rates, among other factors, WDC stock has fallen 24% in the last twelve months. Can it drop more? See how low Western Digital stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Apr 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 WDC Return 0% 19% -45%
 S&P 500 Return 0% 7% 84%
 Trefis Multi-Strategy Portfolio 0% 8% 241%

[1] Month-to-date and year-to-date as of 4/3/2023
[2] Cumulative total returns since the end of 2016

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