Sandisk Stock Is Still Up 488% This Year Despite a 40% Drop. Is It a Buy Now?
The flash memory maker's profits kept rising while its stock slid. Is the drop a second chance?
Sandisk's stock price has risen by 488% so far this year, even after a 40% drop. However, this has left the shares 40% below their June 25 peak of $2,335. The company's profits have continued to grow, but at a slower pace compared to the gains made in the earlier part of the year. Sandisk reported Q4 earnings of $39.25 per share, up 68% sequentially from the previous quarter.
The company expects earnings growth to slow down to around 15% in the next quarter. Despite the recent drop, the stock's price-to-earnings ratio is around 19, which is not too high compared to the company's earnings today. Sandisk has also been actively investing its cash, using $5 billion in adjusted free cash flow in Q4 to buy back shares.
The company has secured multiyear supply agreements with eight customers, totaling $93.9 billion in revenue at floor prices. This provides some protection against market fluctuations. However, most of Sandisk's output still sells at market prices, and the company's future earnings will largely depend on the performance of these contracts.
Therefore, investing in Sandisk at this stage might be a bit of a gamble, considering that only about half of the company's earnings are backed by these contracts.
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