Not Many Are Piling Into Western Digital Corporation (NASDAQ:WDC) Stock Yet As It Plummets 26%

Western Digital Corporation (NASDAQ:WDC) shares have had a horrible month, losing 26% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 32% in the last year.

Although its price has dipped substantially, it's still not a stretch to say that Western Digital's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the Tech industry in the United States, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Western Digital

What Does Western Digital's Recent Performance Look Like?

Recent times have been advantageous for Western Digital as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Western Digital's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Western Digital?

In order to justify its P/S ratio, Western Digital would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.2%. However, this wasn't enough as the latest three year period has seen an unpleasant 23% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the analysts watching the company. With the industry only predicted to deliver 8.9% per year, the company is positioned for a stronger revenue result.

In light of this, it's curious that Western Digital's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Western Digital's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Western Digital currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Western Digital (1 is potentially serious) you should be aware of.

If you're unsure about the strength of Western Digital's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com