Long-established in the Hardware industry, Western Digital Corp (WDC, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 0.22%, juxtaposed with a three-month change of 22.13%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Western Digital Corp.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 5/10
- Profitability rank: 5/10
- Growth rank: 3/10
- GF Value rank: 1/10
- Momentum rank: 9/10
Based on the above method, GuruFocus assigned Western Digital Corp a GF Score of 62 out of 100, which signals poor future outperformance potential.
Understanding Western Digital Corp Business
Western Digital Corp is a leading vertically integrated supplier of data storage solutions, spanning both hard disk drives (HDDs) and solid-state drives (SSDs). With a market cap of approximately $20.88 billion and sales of $11.26 billion, Western Digital Corp operates in a practical duopoly in the HDD market alongside Seagate and is the largest global producer of NAND flash chips for SSDs through a joint venture with competitor Kioxia. Despite its significant presence in the data storage market, the company's operating margin currently stands at a concerning -15.26%.
Financial Strength Breakdown
Western Digital Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company has an interest coverage ratio of 0, which positions it worse than 0% of 1,583 companies in the Hardware industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Score is just 1.68, which is below the distress zone of 1.81, suggesting that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.3 indicates a struggle in handling existing debt levels.
Profitability Breakdown
Western Digital Corp's low Profitability rank can also raise warning signals. The company's Operating Margin has declined over the past five years, with a significant drop to -8.87% in 2023 from a high of 12.95% in 2022. Furthermore, Western Digital Corp's Gross Margin has also declined over the past five years, indicating struggles to convert its revenue into profits. With a Piotroski F-Score of 1, Western Digital Corp's financial health appears concerning, potentially facing challenges in profitability, liquidity, and operating efficiency.
Growth Prospects
A lack of significant growth is another area where Western Digital Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by an average of -11.6% per year over the past three years, which underperforms worse than 83.75% of 2,344 companies in the Hardware industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Western Digital Corp's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Next Steps
Considering Western Digital Corp's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. The company's challenges in managing debt, declining margins, and lackluster growth prospects paint a picture of a tech giant that may struggle to keep pace with industry demands and investor expectations. Value investors should weigh these factors carefully when considering Western Digital Corp as a potential addition to their portfolios. For those seeking more robust investment opportunities, GuruFocus Premium members can find companies with strong GF Scores using the following screener link: GF Score Screen.
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.
