Which data storage stock is a better buy?

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Western Digital Corporation (WDC) and Pure Storage, Inc. (PSTG) are two leading technology companies engaged in data storage. WDC in San Jose, California develops, manufactures and sells data storage devices and solutions, primarily hard disk drives (HDDs) and solid-state drives (SDDs), and serves OEMs, distributors, resellers and retailers. In comparison, PSTG in Mountain View, CA provides technology and data storage solutions and offers container data services, such as storage, data protection, data security, and disaster recovery/backup for cloud-native applications. It also offers enterprise flash arrays for high performance workloads.

The growing demand for high capacity data storage solutions in the digital age has spurred the growth of the data storage industry. The continued adoption of hybrid work models is expected to further drive industry growth. The data storage market is expected to grow at a pace 32.3% CAGR to $4.20 billion by 2026. As a result, PSTG and WDC stand to benefit significantly.

While shares of WDC have fallen 10.1% over the past month, those of PSTG have gained 9.5%. PSTG is also a clear winner with gains of 10.9% over WDC’s negative returns over the past six months. But which of these actions is a better choice now? Let’s find out.

Latest developments

At its HDD Reimagine event on August 31, 2021, WDC showcased a new flash drive architecture that breaks the boundaries of traditional storage. The new storage architecture with OptiNAND technology optimizes and integrates hard drives with integrated iNAND flash drives. This solution enables customers to meet the exponential growth of data creation by providing the capacity, performance and reliability needed to store large amounts of data.

On February 10, 2022, PSTG announced a strategic engagement with Amazon.com, Inc.’s (AMZN) Amazon Web Services (AWS) company for solution development and enablement programs for PSTG’s Portworx solutions to helping enterprises move Kubernetes workloads into production. As the growing adoption of containerized applications by organizations demands more options to manage stateful and persistent data, Portwox offering could help create persistent storage, data protection, disaster recovery, cross-regional and hybrid data migrations and automated capacity management. PSTG is expected to see strong demand in the coming months.

Recent financial results

WDC’s net revenue for its second quarter of fiscal 2022, ended December 31, 2021, increased 22.6% year-on-year to $4.83 billion. The company’s non-GAAP gross profit was $1.62 billion, indicating a 56.2% year-over-year improvement. Its non-GAAP operating profit was $882 million, up 157.1% from the prior year period. And while its non-GAAP net income rose 241.5% year over year to $724 million, its non-GAAP EPS rose 233.3% to $2.30. As of December 31, 2021, the company had $2.53 billion in cash and cash equivalents.

For its fourth quarter of fiscal 2022, ended February 6, 2022, PSTG’s total revenue increased 41% year-over-year to $708.57 million. The company’s non-GAAP gross profit was $487.54 million, an increase of 39.7% over the prior year period. Its non-GAAP operating profit was $118.69 million, representing a 223.2% year-over-year increase. And PSTG’s non-GAAP net income was $112.44 million, up 189.8% from the prior year period. Its non-GAAP EPS was $0.36, up 176.9% from the prior year period. The company had $466.20 million in cash and cash equivalents as of February 6, 2022.

Past and expected financial performance

WDC’s revenues, total assets and free cash flow have declined at CAGRs of 0.8%, 2.3% and 19.1%, respectively, over the past three years.

WDC’s EPS is expected to increase 89.8% year-over-year in its 2022 fiscal year, ending June 30, 2022, and 21.8% in its 2023 fiscal year. business is expected to grow 19.5% year-over-year in its fiscal 2022 and 10.6% in fiscal 2023. And analysts expect the company’s EPS to rise at a rate of 20% per year for the next five years.

By comparison, PSTG’s revenues, total assets and free cash flow have grown at CAGRs of 17.1%, 16.7% and 61.4%, respectively, over the past three years.

Analysts expect PSTG’s EPS to grow 28.9% year-over-year in its 2022 fiscal year, ending Jan. 31, 2023, and 28.5% in its 2023 fiscal year. revenue is expected to grow 19.4% year-on-year in fiscal 2022 and 16.2% in fiscal 2023. The company’s EPS is expected to grow at a rate of 65.1% annually over the next five years.

Evaluation

In non-GAAP futures PEG terms, PSTG is currently trading at 1.24x, 83.9% higher than WDC’s 0.20x. And in terms of EV/Forward Sales, WDC’s 1.11x compares to PSTG’s 3.08x.

Profitability

WDC’s revenues over the last 12 months represent almost 8.7 times those of PSTG. WDC is also more profitable, with 17.8% EBITDA margin against the negative value of the PSTG.

Additionally, WDC’s ROE, ROA, and ROTC of 18.3%, 5.8%, and 7.6%, respectively, compare to negative PSTG values.

POWR Rankings

While WDC has an overall B rating, which translates to Buy in our proprietary POWR rating system, PSTG has an overall C rating, which equals Neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.

In terms of growth, both WDC and PSTG are rated A. WDC’s leveraged free cash flow has increased by 147% over the past year, while PSTG’s leveraged free cash flow has increased by 89.4%.

WDC has a B rating for value, which is in line with its lower-than-industry valuation ratios. WDC has a Forward Price/Book of 1.17x, which is 72.8% above the industry average of 4.29x. However, PSTG’s D rating for Value reflects its overvaluation. PSTG’s 9.13x futures price/pound is 112.7% above the industry average of 4.29x.

Of the 45 B-rated stocks in the Technology – Hardware industry, WDC is ranked #11.

PSTG is ranked #1 in the B-rated technology industry – Storage.

Beyond what we’ve stated above, our POWR rating system also rated WDC and PSTG for stability, feeling, momentum, and quality. Get all WDC ratings here. Also click here to see additional POWR ratings for PSTG.

The winner

The growing demand for efficient and secure data storage and management platforms from enterprises is expected to benefit the WDC and PSTG. However, its higher profitability and lower valuation make WDC a better buy here.

Our research shows that the odds of success increase when betting on stocks with an overall POWR rating of Buy or Strong Buy. Click here for top-rated stocks in the Technology – Hardware industry, and here for those in the Technology – Storage industry.


Shares of WDC were trading at $46.58 per share on Tuesday afternoon, down $0.03 (-0.06%). Year-to-date, the WDC is down -28.57%, compared to a -11.19% rise in the benchmark S&P 500 over the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. Continued…

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