Jim Cramer/ The Street.com recommended Western Digital (WDC) as a great value based on a P/E of around 6. WDC has a lot of cash on hand and therefore P/E minus cash makes it even more attractive. I'm always looking for companies with a low P/E and PEG for long term investment. Seeing the explosion of data, I thought WDC would be a great company to invest in. Is the low P/E justified or is WDC a great value?
Looking at 2012's 10k filling, it appears that the lion share of their revenue comes from PCs. PCs are quickly being replaced by tablets. Smaller form factor requires smaller drives with lower power consumption. Will WDC be able to compete in that market? Intel didn't get into the mobile processor market till it was too late. They dominate the PC market which is shrinking while mobile is growing.
Another threat might be the availability and affordability of cloud storage. Will users find it more convenient to store their pictures and music in the cloud or keep buying USB external drives at Costco? My family of 4 has 4 laptops, 2 iPads, 3 iPhones, 2 iPods, a Time Capsule, and numerous USB and Firewire drives. Most of the calls coming into daddy's service desk are related to "Where is my stuff?" and "How can I get to my stuff?". Our family CFO and General Counsel, my wife, is very concerned with privacy, especially for our two young daughters. I think the move to cloud is inevitable!
iCloud charges $20/year for 10 GB of additional space. This is equivalent to $0.16/GB/month which is really expensive. At our company, the goal is around $0.01/GB/month for archive storage but our volumes are much larger than 10 GB. I would estimate at $20/year the margins are pretty healthy for Apple and they can probably reduce prices to acquire marketshare. For most Apple users, the convinience and ease of use seems to be worth it.
Is the low P/E justified or is WDC a great value?
Looking for feedback and opinions,
Houman
