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Can Western Digital Hold the Line?

Its financial position continues to trend lower, but is the stock attractive at these prices?

Caleb Dismuke

Since hitting $114/share in November 2014, Western Digital’s stock has lost 70% of its value, and it’s trading at levels not seen since 2012. Also, its stock has trailed the S&P 500 over the last 1, 3, and 5 year periods.

What they do:

They design and manufacture data storage devices for the IT industry.

End markets served:

  • Client devices (computers and mobile devices)
  • Data center devices and solutions
  • Client solutions

Note: They also generate license and royalty revenue from each of the three end markets. For more information, see page 6 of their annual report.

Other facts:

  • Over 14, 000 patents worldwide.
  • Customers include other equipment manufacturers (OEM), internet and social media infrastructure companies, and personal computer and Mac OEMs.
  • Its three primary brands are HGST, SanDisk, and WD.

Competitors:

  • For HDD (hard disk drives), its competitors are Seagate Technologies ($STX) and Toshiba Electronics.
  • For flash, its competitors are Intel ($INTC), Micron ($MU), and Samsung.

To read about their business strategy, start on page five of the annual report.


What's its chart telling us?

  • Price is testing the demand (support) zone between $22-$30.
  • That zone has held the downside in check the previous three times (blue arrows).
  • Note, the rallies from the $22-$30 zone are getting smaller.

KEY FACTS
Ticker $WDC
Headquarters San Jose, CA
# of Employees 61,800 (as of 2020)
Market Cap. $10.4 billion
TTM Revenue $16.7 billion
Date Founded 1970
IPO Date 1973
Short Interest 3.4%
52-Week Range $29-$70

KEY FINANCIALS TTM, $ in millions
Revenue $16,736.0
Gross Margin 22.6%
EBITDA $1,936.0
EBITDA Margin 11.6%
Net Income ($250.0)
Net Income Margin (1.5%)
Free Cash Flow $947.3
Free Cash Flow Margin 5.6%

RETURNS TTM
Return on Assets 0.9%
Return on Invested Capital (ROIC) 1.2%
Return on Equity (2.6%)

VALUATION METRICS
Forward Price/Revenues 0.7x
Trailing Price/Revenues 0.6x
Forward Price/Earnings 86.0x
Trailing Price/Earnings 2.6x

Additional Information: