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Last week, I picked a price where I'd buy Sandisk (NASDAQ:SNDK) stock: around $900 a share, or four years of profits at the pace management guided for this quarter. By Wednesday, Nov. 11, the flash memory maker had closed near $978, so I waited.
But two trading days later, it's back under that level. Shares dropped about 8% on Friday, to roughly $860 as of this writing, and they're down about 12% since Wednesday's close.
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These prices are all before Sandisk's eight-for-one stock split. Split-adjusted trading should begin on Nov. 20 -- at that point, today's price would come to about $107 and my buy price to about $112.
Sandisk hasn't changed its guidance since it posted fiscal first-quarter results on Oct. 29, and its only regulatory filings since then have been its quarterly report, an insider's stock-transaction report, and an ownership filing by a big shareholder.
Friday's fall also wasn't limited to Sandisk. As of this writing, memory chipmaker Micron is down around 4%, hard drive maker Western Digital is off about 7%, and the Nasdaq Composite has dipped about 1%.
So, the drop looks like part of a wider sell-off in tech stocks, not a reaction to anything Sandisk said or reported. The earnings behind my $900 price are the same as they were on Wednesday.
For the fiscal second quarter of 2027, management sees revenue between $12.2 billion and $12.6 billion and non-GAAP (adjusted) earnings between $55 and $57 a pre-split share. That quarter started after fiscal Q1 ended on Oct. 2, so Sandisk is already about six weeks into it. At the midpoint, revenue would reach about $12.4 billion, up roughly 12% over fiscal Q1's $11.0 billion. That would be about four times the $3.0 billion Sandisk took in during the same quarter a year before. And adjusted profit per share would be about nine times the year-ago number of $6.20.
Showing where this growth comes from, data center revenue hit $4.8 billion in fiscal Q1, making up about 44% of Sandisk's sales. A year before, it was below $300 million. Total revenue climbed 378% year over year in fiscal Q1.
My $900 price is four years of earnings at the $56 midpoint. At roughly $860, a buyer pays for about 3.8 years of them.
And even if the quarter lands at the bottom of the range, $55 a share, four years of that pace would be about $880 -- still above where the stock trades now.
The valuation has also come down quickly. Shares closed near $1,151 on Oct. 30, the first trading day after the guidance came out, or about 5 times annualized guided earnings. Since then, the stock has fallen about 26% on the same outlook.
The biggest risk is flash pricing. Sandisk's profits have soared largely because it's charging much more for its memory.
And in its latest quarterly report, management said it expects demand driven by artificial intelligence (AI) to last through 2027 and beyond. But flash prices can drop fast when supply catches up to demand.
Showing how much depends on these prices, Sandisk's adjusted gross margin was around 30% in the first quarter of fiscal 2026. It hit 51% the next quarter and 85% in the latest one. For this quarter, the company guides for 84.5% to 85.5%. In short, the margin looks to have stopped widening, while sequential revenue growth is guided to slow to around 12% from 23%.
Sure, the guidance doesn't show prices dropping yet. But my price assumes four years of earnings around this quarter's pace, and a memory boom might not last that long. If flash prices slip, the profits behind my $900 price could slip with them, and the stock could fall further before it recovers.
Is Sandisk a buy now that it's back under $900? I think it is. I'd consider starting with a small position today and adding to it over time. If the stock keeps sliding, a small first purchase leaves room to buy more at lower prices.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Western Digital. The Motley Fool has a disclosure policy.
Sandisk Stock Fell Back Under $900 on Friday. I'd Start With a Small Position. was originally published by The Motley Fool
