Western Digital's stock has been under pressure since June, when it peaked at $800. Since then, it has fallen more than 52% to its current price of $378, with its market capitalization shrinking from $257 billion to $141 billion. Investors are now looking to the company's upcoming earnings report as a potential catalyst that could help improve sentiment and drive a recovery in the stock's performance.
Western Digital’s implied volatility has jumped
WDC stock has dropped sharply in the past few months because of the ongoing weakness among companies in the memory industry. A look at all companies in the Roundhill Memory ETF (DRAM) shows that all of them have retreated by double digits from their highest levels this year.
Western Digital stock will likely experience some volatility when it releases its earnings report. The options market show that its implied volatility has jumped to 140%, more than double the historic volatility of 63%.
Most traders in the options market expect the stock to rebound after its earnings report. The company has a put/call ratio of 0.67, a sign that there are more calls than puts. Most calls are concentrated at $400, 4.5% above the current level. On the other hand, most of the calls are at $375, a few points below where it is today.
Western Digital stock dropped by over 13% after releasing its last results. Before that, its post-earnings moves were usually muted because it was not a popular stock.
Most recently, however, most memory stocks have remained muted after publishing their financial results. Micron remained in a tight range, even after management released a strong earnings report, which showed that its revenue jumped to $54 billion.
Western Digital’s revenue is soaring
The upcoming earnings report is expected to show that Western Digital’s revenue continued growing in the first quarter. This growth is happening because of the artificial intelligence boom that has led to vast amounts of data being produced.
The average estimate among analysts is that Western Digital’s revenue rose by 47% to $4.14 billion, with the most optimistic forecast being $4.27 billion. Its earnings per share is expected to soar from $1.78 in Q1 of last year to $4.08. Based on the recent earnings report, chances are that the company’s real results will be much higher than expected.
Western Digital’s management expects that its revenue growth will continue accelerating, with its gross margin rising to over 50%. Its margins are benefiting from the ongoing shift towards higher-capacity HDDs that are used in the data center industry.
The main risk that Western Digital faces is that its business may see a big supply of HDDs, especially from Chinese companies.
WDC stock price technical analysis
The daily chart shows that the Western Digital stock has slumped in the past few months, falling from a high of $800 in June to the current $378. Most recently, it formed a descending channel, which is characterized by a series of lower lows and lower highs. It has also dropped below the 200-day Exponential Moving Average (EMA).
The most likely scenario is where the stock rebounds as bulls attempts to retests the upper side of the descending channel at $420. A drop below the lower side of the channel will point to more downside in the near term.
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