Entering text into the input field will update the search result below

Another Look At The Low-Cost Building Blocks Of Storage - Part 2

Amvona profile picture

Go back to Part 1

The Amvona (NASDAQ:WDC) EPS estimate could be wrong, the market may continue it's recent trend down - but if the market comes to understand the error of its ways, the price of WDC may well go up, for even a doubling of the share price would leave the stock cheap by all measures including the company's own historical values.

Consider the valuation ratios in historical context:

WDC Valuation Ratios 10 Yr. Avg. FYE 2012
PE Ratio (ttm) 10.3 4.5
Price to Tangible Book 3.2 1.6
Price-to-Free-Cash-Flow ratio 16.0 3.2
Price to Book 3.1 1.0
Free Cashflow per Share 2.3 9.3
Gross Margin % 18.4 29.2

Another way to look at it is to say if the company just earns consensus of $2.55 per share, at Sept. 30th, 2012 the company would have had approximately $33.72 in book value (or a P/B ratio of just 1.03). A P/B book of ~1 means the company as a going concerns is, well, worthless or no more than the sum of its equity, the vast majority of which is tangible. However, since more than three weeks will have passed by the time investors learn of the company's FQ1 performance, it is almost certain that the actual P/B ratio on Oct. 22nd will be something below 1.

That would mean the company is selling at just 33% of its historical 10 year avg. P/B value 3.11.

Taking another look at a DCF model, if EPS is $10 (per the company) and the growth rate is 16.6% (the historical average), with a terminal growth rate of just 4% (10 years) and a standard discount rate of 12%, it is possible to reach a DCF fair value of as high as ~$227. It seems high. However, in 2009 when Apple's (

This article was written by

Amvona profile picture
Welcome to Lemelson Capital Management Lemelson Capital focuses on deep value and special situation investments.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.