SanDisk stock price has crashed into a deep bear market, moving from a record high of $2,367 in June to the current $1,271. This retreat happened even after the strong earnings report and forward guidance amid the ongoing artificial intelligence (AI) boom. So, will the bear market continue or will it bounce back soon?
SanDisk stock has dropped despite its business being booming
The SNDK stock has dropped sharply this year, even after its recent earnings report showed that its business is firing on all cylinders amid the ongoing AI boom.
Its fourth-quarter revenue jumped to $8.97 billion, up by 51% from the third quarter and 372% from what it made in the same period last year. This growth makes it one of the fastest-growing companies in the United States.
SanDisk’s revenue growth was because of the large memory orders from some of the biggest companies in the world. At the same time, the shortage has led to a sharp increase in memory prices, a trend that may continue in the foreseeable future.
For one, Nvidia has come up with a plan to raise $500 billion to fund the AI data center build. Also, the biggest companies in the data center space, including popular names like Meta Platforms, Microsoft, Apple, and Alphabet plans to spend over $750 billion this year, and possibly more next year. Some of these funds will go towards memory purchases.
SanDisk is already sold out for the year, and management believes that it has a sales visibility for the next four years. This means that it expects its revenue growth to continue in this period.
The company has also become highly profitable, with its net income rising to $6.9 billion from a loss of $23 million in the same period last year.
Analysts are highly bullish on the company’s growth. The average estimate is that its revenue will rise by 363% to $10.7 billion. Its second-quarter revenue is expected to jump by 305% to $12.27 billion.
For the year, the company’s revenue is expected to jump by 141% to $48.9 billion, followed by $58.2 billion next year. The EPS is expected to jump to $213, followed by $265 next year.
SanDisk is highly undervalued
There are signs that the company is highly undervalued, which explains why most analysts are highly bullish on the firm. For one, the company now trades with a forward price-to-earnings ratio of 5.8, giving it an A+ rating on Seeking Alpha. This multiple is much lower than the sector median of 23. Its forward PEG ratio stands at 0.14.
The company’s rule-of-40 metric is also much higher than the benchmark of 40. It has an annual forward revenue growth of 141% and a net income margin of 56%, giving it a multiple of 197%.
Top analysts have a bullish outlook for the company. Cantor Fitzgerald has an overweight rating, while Argus hiked the rating from hold to buy. Bernstein reiterated an outperform rating. The consensus target among analysts is $1,853, up by 45% from the current level.
SNDK stock price technical analysis
SanDisk stock chart | Source: TradingView
The daily timeframe chart shows that the SanDisk stock has strong technicals. It has formed a large descending channel, whose up and lower swing since June 16 this year.
The channel is part of the bullish flag pattern. It remains above the 200-day Exponential Moving Average (EMA), a sign that bulls are still in control. It has also formed a bullish divergence as the Relative Strength Index (RSI) has continued rising.
Therefore, the stock will likely continue rising, potentially to the psychological level of $2,000. A drop below the 200-day EMA will invalidate the bullish outlook.
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