Key Points
Western Digital's revenue grew by 55% in its most recent quarter.
The company also raised its dividend by 17% recently.
Its valuation looks low based on earnings, but the stock is still sitting on some incredible gains over the past five years.
Back in June, Western Digital (NASDAQ:WDC) stock reached a high of just under $800. These days, however, it's struggling to stay above $400. Investor sentiment has soured of late on memory and storage stocks such as Western Digital and Micron Technology.
But the decline has been particularly bad for Western Digital. What's behind the pullback in price, and could now be an opportune time for growth investors to load up on this top storage stock?
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The company's latest earnings numbers were solid, but the stock continues to struggle
On Oct. 22, Western Digital reported its first-quarter earnings for fiscal 2027, covering the period ending Oct. 2. It was a stellar quarter for the tech company, with revenue totaling $4.4 billion, a 55% year-over-year increase. Its operating income was even more impressive, rising by 158% to more than $2 billion.
The company, known for its high-quality storage products, has been experiencing significant demand driven by artificial intelligence (AI) and the need for more storage. As long as companies are investing heavily in AI, that's good news for Western Digital and other related tech companies.
Confident in its future growth, the company also raised its dividend by 17%, a great sign that it believes its strong financial performance will continue and that it can support a much higher payout. Although at just 0.2%, the yield is still fairly small.
Western Digital has been underperforming the broader tech sector of late; over the past three months, it has declined by 26% while the State Street Technology Select Sector SDPR ETF has risen by 7%. Even Micron Technology, which has faced pressure of late, is flat during that stretch. Investors may be concerned about increased competition in the storage market and a potential slowdown in AI-related spending and investments, which could weigh on Western Digital's strong growth numbers in the future.
Western Digital's stock is down from its peak, but it's still up around 800% in five years
It's tempting to look at Western Digital's price-to-earnings multiple of 13 and conclude that it's undervalued. But the stock is still up significantly in recent years, and its valuation only looks low because of the strong earnings growth it has generated of late, driven by rapid spending in the tech sector.
Investors may doubt how long Western Digital's strong results could last if spending slows, which could make the market even more bearish on Western Digital's stock.
Given the volatility in its earnings in recent years and the uncertainty ahead, this isn't a stock that looks like a compelling buy right now, even though it's down big of late.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Western Digital. The Motley Fool has a disclosure policy.