Long-established in the Hardware industry, Western Digital Corp (WDC, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 1.16%, juxtaposed with a three-month change of 21.75%. 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: 6/10
Based on the above method, GuruFocus assigned Western Digital Corp the GF Score of 61 out of 100, which signals poor future outperformance potential.
Understanding Western Digital Corp's Business
Western Digital Corp is a leading vertically integrated supplier of data storage solutions, spanning both hard disk drives (HDD) and solid-state drives (SSD). With a market cap of $18.82 billion and sales of $11.26 billion, it forms a practical duopoly with Seagate in the HDD market and is the largest global producer of NAND flash chips for SSDs in a joint venture with competitor Kioxia. Despite its significant presence in the industry, the company's operating margin currently stands at -15.26%, indicating challenges in profitability.
Financial Strength Breakdown
Western Digital Corp's financial strength indicators present some concerning insights about the company's balance sheet health. With an interest coverage ratio of 0, it is positioned worse than 0% of 1,585 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 1.58, 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 Profitability rank is also a cause for concern. The company's Operating Margin has declined significantly over the past five years, with figures showing a drastic drop from 12.95% in 2022 to -8.87% in 2023. Similarly, Western Digital Corp's Gross Margin has also declined, from 31.26% in 2022 to 15.32% in 2023. This trend underscores the company's struggles to convert its revenue into profits. With a Piotroski F-Score of 1, Western Digital Corp's financial health appears concerning, indicating 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 84.51% of 2,324 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. Investors should be cautious and consider these factors when evaluating the company's future prospects. 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.
