Given its better prospects, we believe Western Digital stock (NYSE: WDC) is a better pick than Expedia stock (NASDAQ: EXPE). Although these companies are from different sectors, we compare them because they have a similar market capitalization of around $15 billion and a similar revenue base of about $12 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.
Interestingly, WDC stock has had a Sharpe Ratio of 0.0 since early 2017, lower than 0.1 for EXPE and 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Looking at stock returns, both have outperformed the broader markets. While EXPE is up 17% this year, WDC has surged 45%, and the S&P500 index is up 12%. The rise in WDC stock over the recent months can be attributed to its reportedly ongoing discussions for a merger with Japan’s Kioxia Holdings.  There is more to the comparison, and in the sections below, we discuss why we believe WDC will offer better returns than EXPE in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Western Digital vs. Expedia: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
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- Why Has Western Digital Stock Underperformed The S&P Since 2017?
- Western Digital Stock Has Outperformed The S&P Since 2018 Despite A Drop In Sales
- After Rough Month, Can Western Digital Stock Turn Things Around?
1. Expedia’s Revenue Growth Is Better
- Expedia’s revenue growth has been better, with a 14.7% average annual growth rate in the last three years, compared to -7.4% for Western Digital.
- Western Digital’s revenues rose from $16.7 billion in fiscal 2020 to $18.8 billion in 2022 (the fiscal ends in June) due to high demand for cloud storage.
- However, the sales plunged to $12.3 billion in fiscal 2023 due to significant storage price erosion and reduced purchases by enterprise customers.
- Expedia has benefited from the rapid recovery of the traveling and lodging industry, resulting in the company’s revenue and operating cash flow exceeding pre-pandemic levels.
- Despite challenging macroeconomic factors, including rising costs and slowing economic growth, the travel demand remains robust globally.
- If we look at the last twelve-month period revenues, Expedia fares better with sales growth of 15% vs. -26% for Western Digital.
- Our Western Digital Revenue Comparison and Expedia Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, Western Digital is likely to see better sales growth than Expedia. We forecast Western Digital’s top-line to expand at a CAGR of 7.6% to $18 billion in three years, while Expedia will likely see its sales rise in a mid-single-digit average annual growth rate to $14 billion over this period, based on Trefis Machine Learning analysis.
2. Expedia Is More Profitable
- Western Digital’s operating margin declined from 2.0% in fiscal 2020 to -8.9% in 2023, while Expedia’s operating margin rose from 7.4% in 2019 to 12.7% in 2022.
- Looking at the last twelve-month period, Expedia’s operating margin of 15.5% fares much better than -8.9% for Western Digital.
- Western Digital’s margin metric has partly been weighed down due to manufacturing underutilization and inventory write-downs, among other factors.
- Our Western Digital Operating Income Comparison and Expedia Operating Income Comparison dashboards have more details.
- Looking at financial risk, Expedia fares better. Its 44% debt as a percentage of equity is slightly lower than 48% for Western Digital. Also, its 24% cash as a percentage of assets is higher than 9% for the latter, implying that Expedia has a better debt position and more cash cushion.
3. The Net of It All
- We see that Expedia has seen better revenue growth, is more profitable, and has a better financial position.
- Looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Western Digital will offer better returns in the next three years, primarily due to its superior revenue growth.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of around 36% for WDC over this period vs. an 11% expected return for Expedia, based on Trefis Machine Learning analysis – Western Digital vs. Expedia – which also provides more details on how we arrive at these numbers.
- Western Digital’s sales three years from now are expected to be $18 billion, and assuming the P/S multiple of 1.1x closer to its current levels would result in a market capitalization of $20 billion vs. $15 billion now, implying around 36% return.
- In comparison, Expedia sales are expected to be around $14 billion over this period, and assuming a P/S multiple of 1.1x, closer to its current levels, would result in a market capitalization of around $16.5 billion vs. $15 billion now, implying around 11% gains.
While WDC may outperform EXPE in the next three years, 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.
|S&P 500 Return||-5%||12%||92%|
|Trefis Reinforced Value Portfolio||-6%||24%||537%|
 Month-to-date and year-to-date as of 9/29/2023
 Cumulative total returns since the end of 2016
- Chip Memory Firm Kioxia’s Banks Prep $14 Billion Loan for Western Digital Merger, Taro Fuse, Hideki Suzuki, and Liana Baker, Sep 20, 2023, Bloomberg [↩]