Is Western Digital (WDC) a Great Stock for Value Investors?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Western Digital Corporation WDC stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Western Digital has a trailing twelve months PE ratio of 8.6, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 20.7. If we focus on the stock’s long-term PE trend, the current level puts Western Digital’s current PE ratio somewhat below its midpoint (which is 10.4) over the past five years.

Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 12.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Western Digital has a forward PE ratio (price relative to this year’s earnings) of just 6.7, so it is fair to say that a slightly more value-oriented path may be ahead for Western Digital’s stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Western Digital has a P/S ratio of about 1.4. This is substantially lower than the S&P 500 average, which comes in at 3.4 right now. Also, as we can see in the chart below, this is somewhat below the highs for this stock in particular over the past few years.

If anything, this suggests some level of undervalued trading—at least compared to historical norms.   

Broad Value Outlook

In aggregate, Western Digital currently has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes WDC a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio (another great indicator of value) comes in at 5.4, which is noticeably better than the industry average of 11.3. Clearly, WDC is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Western Digital might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of A and a Momentum score of D. This gives WDC a VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen four estimates go higher in the past thirty days and one lower, while the full year estimate has seen six upward and one downward revisions in the same time period.

This has had a favorable impact on the consensus estimate, as the current quarter consensus estimate has risen about 4.3% in the past one month, while the full year estimate has grown about 2.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Western Digital Corporation Price and Consensus

 

Western Digital Corporation Price and Consensus | Western Digital Corporation Quote

This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.

Bottom Line

Western Digital is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a decent industry rank (top 44% out of more than 250 industries) and a top Zacks Rank, the company deserves attention right now. In fact, over the past one year, the sector has clearly outperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Western Digital Corporation (WDC) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research