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SanDisk: A Good Buy on the Pullback

May 23, 2014 | About:



Analysts had expected a terrific performance from SanDisk (SNDK) and the company duly obliged. However, the stock crashed more than 6% after results, something which was unexpected.

What could have led to this downfall? Analysts are still searching for the reasons. According to Associated Press, SanDisk fell as Apple supplier Cirrus Logic warned of a weak quarter a few days back, whereas some reports cited that SanDisk’s outlook for the current quarter is very near to consensus estimates.

However, these are not at all the reasons for the downfall of SanDisk down. Rather, it might be that SanDisk was swept into the whirlpool of a broader market sell-off. But, looking at the comparatively cheap stock, investors have an opportunity to buy more shares of SanDisk at a lower price. This is further supported by the company’s solid track record and business prospects.

Solid Results

SanDisk posted revenue of $1.34 billion In the just-reported first quarter, 11% higher than the year-ago period and well ahead of the $1.3 billion consensus estimate. Non-GAAP earnings of $207 million, or $0.84 per share, were 33% higher as compared to last year, and well ahead of analysts' estimate of $0.77 (according to Yahoo! Finance).

For the current quarter, SanDisk's outlook exceeded analysts' estimates, and the company raised its full year forecast as well. For the ongoing quarter, company expects revenue between 1.35 billion and $1.4 billion above the analyst expectation of $1.35 billion. Also, for the full year SanDisk expects revenue to be in the range of $5.6 billion to $5.75 billion, up from the previous expectation of $5.3 billion to $5.6 billion.

Time to Buy

Therefore, this is an opportunity for investors to pump up their portfolio with more of SanDisk. Moreover, as SanDisk supplies memory to Apple, it does not mean that it would have the same fate as Cirrus Logic. Cirrus Logic, which supplies audio chips to Apple, was affected badly a few days prior after releasing preliminary results.

According to Cirrus Logic, due to slowdown in demand from Apple SanDisk’s inventory reserve would swell to record highs as Apple accounts for around 90% of its top line. The speculation of delay in Apple’s next generation products has led to the inventory glut at Cirrus.

However, according to KGI Securities analyst Ming-Chi Kuo, Apple would be refreshing its line up in September this year. And Apple accounted for around 13% of SanDisk’s revenue last year, well ahead what Cirrus Logic commands. Further, SanDisk forecasts that the company isn’t much affected by Apple’s slowdown, and raises the forecast for the full year implying that it can expect a bumper second half this year.

More than Just Mobile

Apple is just one of the clients driving SanDisk’s business, and the Street needs to look for other important developments going in the company’s favor. For the past few quarters, SanDisk’s solid-state drives (SSDs) have been selling strongly. Sales of Client and Enterprise SSDs tripled from the year ago period. The low margin bundle card product sales declined, and embedded products with high margin continued to be in greater demand.

Further, strong sales in the mobile segment are driving a solid outlook for SanDisk for this year. The company’s retail sales climb 34% from the year ago period to $512 million owing to an increased demand for mobile cards and USB flash drives. The sales of mobile cards are expected to increase further as expected by the management driven by limited card bundling by smartphone makers. Furthermore, increasing sales of embedded NAND products for both high-end and budget smartphones are expected to drive SanDisk’s top line higher.

SanDisk can further improve its gross margins with better pricing for NAND flash which the company expects throughout the year.

And finally, the future growth for SanDisk is bound to be driven excellently by Apple’s launch of next generation products as the year progresses. Investors must consider seriously the fact that SanDisk supplies NAND flash memory to the iPhone and the iPad, and both these products have been in great demand.

The retina display in iPad mini is the most sought after product now and it might exceed sales of its predecessor when launched. As such, SanDisk’s Apple account is very profitable which has the ability to propel the company’s top line to greater heights.


Thus, there seems to be no reason why SanDisk should have fallen like it did after releasing earnings. However, as mentioned earlier, investors must take advantage of this dip as the stock would probably continue to rise with the passing year. Furthermore, SanDisk has a forward P/E ratio of just 12 and a PEG ratio of 0.48 which promises a lot of growth ahead, and investors with no doubt must capitalize on this opportunity.

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