On Thursday night, we'll get a first-quarter 2008 report from hard drive designer Western Digital (NYSE:WDC). This is a downtrodden stock in a hot sector, so this Fool thought you'd like to see how the storage business led into this report.

What Fools say:
Here's how Western Digital's CAPS score rates against some of its peers and competitors:

Market Cap (millions)

Trailing P/E Ratio

CAPS Rating (out of 5)

EMC (NYSE:EMC)

$52,830.0

35.4

*****

Hitachi (NYSE:HIT)

$22,080.0

N/A

**

Seagate Technology (NYSE:STX)

$14,620.0

12.6

****

Western Digital

$5,520.0

10.1

****

Quantum (NYSE:QTM)

$731.6

N/A

***

Data from Motley Fool CAPS as of Oct. 31.

If you can run a profitable storage business, it seems that CAPS players will like you, and Western Digital certainly qualifies on that point.

One All-Star player points to an "undeserved low price here," saying that the company "will outperform by reversing to fair price." Another bullish CAPSer says it is an "awesome company" with a promising product-development pipeline. Nobody has made a negative comment since March, and there is just one thumbs-down grade among the last 165 ratings entered.

What management says:
WD upped its earnings and revenue guidance in September, and now expects $0.61 to $0.65 of net profit per share on $1.6 billion to $1.65 billion in sales. The brighter outlook was based on "improvements in demand, product mix and pricing."

What management does:
There's steady and ample sales growth going on, and the profit margins have an agreeable habit of stepping up a bit every now and then. That leads to generous earnings growth.

If you assume that Western Digital can keep up at least 20% earnings growth for the foreseeable future and add in a P/E ratio around 10 times trailing earnings, then you get a PEG number in the Dirt Cheap range. Yes, that's a technical term.

Margins

3/2006

6/2006

9/2006

12/2006

3/2007

6/2007

Gross

18.7%

19.1%

18.9%

18.2%

17.3%

16.5%

Operating

7.8%

8.5%

8.6%

8.3%

8.3%

7.6%

Net

7.5%

9.1%

9.3%

9.2%

9.1%

10.3%

FCF/Revenue

2.4%

2.3%

3.6%

3.6%

4.9%

5.4%

Growth (YOY)

3/2006

6/2006

9/2006

12/2006

3/2007

6/2007

Revenue

21.7%

19.3%

20.1%

23.0%

23.6%

26.0%

Earnings

68.0%

101.5%

82.7%

60.2%

50.3%

42.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
It's hard to find fault with results like these, especially at such a low valuation. Running the numbers through a discounted cash flow calculator (available to Inside Value members -- take it for a free 30-day test drive) with a conservative 20% growth target shows that the stock may be 40% undervalued today. Simple P/E figures point in the same direction.

It's no wonder my fellow Fools like to highlight Western Digital in deep-discount roundups, or recommend that you give this stock to Mom on Mother's Day. I thought it looked cheap back in January, and the stock has nearly tripled the returns of the S&P 500 benchmark since then -- but it still has plenty of room to improve. Is this the report that will restore Western Digital to its rightful valuation? Shareholders certainly hope so; the rest of us want some more time to buy in.

Sign up for a free CAPS account to find the identities of your fellow Fools who were quoted above. They might have more to tell you!

Fool contributor Anders Bylund holds no position in any of the companies discussed here. He does have an old 800MB WD Caviar hard drive lying around here somewhere, from the first computer he built. You can check out Anders' holdings if you like, and Foolish disclosure is the prognosticator of prognosticators.