Weak demand could see Western Digital Stock slide below $ 60

Western Digital warehouse (NASDAQ: WDC) is relatively unchanged since the beginning of 2020, but at the current price of around $ 64 per share. Stock, we believe the WDC stock has a potential downside of around 15%.

Why? Our belief stems from the fact that the WDC stock is almost 2.2 times higher than the low seen in March 2020. After sending mixed Q2 ’21 numbers, it is clear that the WDC did not benefit from the pandemic , and that the demand for memory device is still not fully restored to pre-Covid levels. Our dashboard Buy or Sell Western Digital Stock? gives the key numbers behind our thinking and we explain more below.

The increase in the WDC share since the end of 2018 came despite a fall in turnover of 19%. A virtually unchanged number of outstanding shares during this period meant that the RPS (earnings per share) came in at $ 56.16 in 2020 against $ 69.52 in 2018, a decrease of 19%.

Western Digital’s
The P / S ratio (price-to-sale) increased from 0.53x in 2018 to 1.12x in 2019, when the supply of semiconductor supply was cleared, which indicated an increase in demand and sales prices. P / S multiples are currently around the same level, but given Western Digital’s mixed Q2 2021 results, there is a possible downside risk for WDC’s multiples.

So what is the likely trigger and timing for this drawback?

The global spread of Coronavirus and the resulting lockdowns have led to an increase in the use of cloud storage and streaming platforms, which has reduced the demand for external memory devices. This is evident from Western Digital’s Q2 2021 results, where revenue came in at $ 3.94 billion. Dollars, down from 4.23 billion. $ In Q2 2020. However, the company was able to control COGS and operating expenses, which brought operating margins to 4%, up more than 3x from 1.2% in Q2 ’20. This helped drive EPS to $ 0.20 from – $ 0.47 during this period.

Despite the opening up of the economy, working from home is likely to become the new norm, and external memory demand including flash and HDD (hard drives) may struggle to return to pre-Covid levels, at least in the medium semester.

Whether or not there is soon a sign of containment of the virus, the company’s weak revenue will ultimately offset profitability. We believe that the stock will see its P / S multiple decline from the current level of 1.14x to around 1x, which combined with a reduction in income and margins may result in the stock price shrinking to as low as $ 55, a disadvantage of almost 15% from the current price of $ 64.

While Western Digital stocks may not seem attractive, 2020 has created many more pricing that can offer attractive trading opportunities. For example, you will be surprised at how counterintuitive the asset assessment is Apple vs Microsoft. Another example is Ansys vs Adobe.

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