Mediaboss Marketing

Margins matter. The more Western Digital
(NYSE: WDC  ) keeps
of each buck it earns in revenue, the more money it has to
invest in growth, fund new strategic plans, or (gasp!)
distribute to shareholders. Healthy margins often separate
pretenders from
the best stocks in the market. That's why we check up on
margins at least once a quarter in this series. I'm looking for
the absolute numbers, so I can compare them to current and
potential competitors, and any trend that may tell me how
strong Western Digital's competitive position could be.

Here's the current margin snapshot for Western Digital over the
trailing 12 months: Gross margin is 22.1%, while operating
margin is 10.3% and net margin is 7.4%.

Unfortunately, a look at the most recent numbers doesn't tell
us much about where Western Digital has been, or where it's
going. A company with rising gross and operating margins often
fuels its growth by increasing demand for its products. If it
sells more units while keeping costs in check, its
profitability increases. Conversely, a company with gross
margins that inch downward over time is often losing out to
competition, and possibly engaging in a race to the bottom on
prices. If it can't make up for this problem by cutting costs
-- and most companies can't -- then both the business and its
shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we
recently experienced can drastically affect a company's
profitability. That's why I like to look at five fiscal years'
worth of margins, along with the results for the trailing 12
months, the last fiscal year, and last fiscal quarter (LFQ).
You can't always reach a hard conclusion about your company's
health, but you can better understand what to expect, and what
to watch.

Here's the margin picture for Western Digital over the past few
years.

Source: S&P Capital IQ. Dollar amounts in millions. FY =
fiscal year. TTM = trailing 12 months.

Because of seasonality in some businesses, the numbers for the
last period on the right -- the TTM figures -- aren't always
comparable to the FY results preceding them. To compare
quarterly margins to their prior-year levels, consult this
chart.

Source: S&P Capital IQ. Dollar amounts in millions. FQ =
fiscal quarter.

Here's how the stats break down:

Over the past five years, gross margin peaked at 24.4% and
averaged 19.8%. Operating margin peaked at 15.8% and averaged
10.6%. Net margin peaked at 14.0% and averaged 9.8%.

TTM gross margin is 22.1%, 230 basis points better than the
five-year average. TTM operating margin is 10.3%, 30 basis
points worse than the five-year average. TTM net margin is
7.4%, 240 basis points worse than the five-year average.

With recent TTM operating margins below historical averages,
Western Digital has some work to do.

If you take the time to read past the headlines and crack a
filing now and then, you're probably ahead of 95% of the
market's individual investors. To stay ahead, learn more about
how I use analysis like this to help me uncover
the best returns in the stock market. Got an opinion on the
margins at Western Digital? Let us know in the comments below.

Continued here:
Here's How Western Digital May Be Failing You