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This month, we saw the Western Digital Corporation (NASDAQ:WDC) up an impressive 38%. But that doesn't change the reality of under-performance over the last twelve months. After all, the share price is down 33% in the last year, significantly under-performing the market.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last year Western Digital grew its earnings per share, moving from a loss to a profit.
When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action. So it makes sense to check out some other factors.
Given the yield is quite low, at 0.8%, we doubt the dividend can shed much light on the share price. Western Digital's revenue is actually up 123% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Western Digital is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Western Digital will earn in the future (free analyst consensus estimates)
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Western Digital the TSR over the last 1 year was -11%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Western Digital shareholders are down 11% for the year (even including dividends), but the market itself is up 11%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should learn about the 3 warning signs we've spotted with Western Digital (including 1 which can't be ignored) .