Stocks for the Long Run: Western Digital vs. the S&P 500

Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index, like the S&P 500. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.

But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how individual stocks have performed against the broad S&P 500.

Step on up, Western Digital (Nasdaq: WDC  ) .

Western Digital shares have underperformed the S&P 500 over the last quarter-century. By quite a bit, too:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 4.8% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Western Digital, it'd be worth just $4,500. 

Now, have a look at how Western Digital earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some outperformance here, albeit with much more volatility. Since 1995, Western Digital earnings per share have increased by an average of 10.3% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Western Digital has traded for an average of 24 times earnings since 1987 -- about the same as the broader S&P 500. It's far different today, however. Western Digital currently trades for about five times next year's expected earnings.

Through it all, shares have been disappointing over the last quarter-century.

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Western Digital with a four-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Western Digital to My Watchlist.