Should You Buy Sandisk Stock at About 5 Times Its Guided Earnings?

Sandisk (NASDAQ:SNDK) had two pieces of news in its Oct. 29 report. The flash memory specialist's revenue grew 23% sequentially, hitting $11.0 billion for the period ending Oct. 2, 2026 -- the first quarter of its fiscal 2027. And it announced an eight-for-one stock split.

A share that closed near $1,330 the day of the report comes to about $166 when the new shares arrive.

But after a roughly 13% drop on Oct. 30, the growth stock is about 51% under its 52-week high of about $2,354, hit in June, though Sandisk's profits have kept rising since then. Should investors buy before the split?

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The split won't change what investors own

Shareholders of record as of Nov. 9 will get seven extra shares for every share they hold, issued after the market closes on Nov. 19. Trading on a split-adjusted basis is expected to begin on Friday, Nov. 20. Sandisk said its market value and each shareholder's ownership percentage won't change.

In other words, every per-share number just gets divided by eight. CFO Luis Visoso guided for adjusted earnings per share between $55 and $57 in fiscal Q2 on a pre-split basis, which he said comes to around $6.88 to $7.13 after the split.

Sandisk said it's splitting the stock to make shares more accessible, including to employees buying through its employee stock purchase plan. But a lower share price doesn't change what a buyer gets for the money.

Growth is coming more from volume now

Revenue leaped 378% year over year in fiscal Q1. Sandisk's non-GAAP (adjusted) gross margin ticked up to 85.1% from 84.6% in the previous quarter, and adjusted earnings per share climbed 26% sequentially to $49.51. Showing where the demand is coming from, data center revenue jumped 61% sequentially to $4.8 billion, rising to around 44% of total revenue from about one-third in fiscal Q4.

But Visoso said about 60% of the quarter's sequential revenue gain came from shipping more storage and about 40% came from higher prices. In fiscal Q4, pricing had driven around two-thirds of Sandisk's sequential growth.

In dollars, higher prices added about $2 billion to revenue from fiscal Q3 to fiscal Q4, but only about $800 million from fiscal Q4 to fiscal Q1.

Management's forecast points to even slower growth. Sandisk guided for fiscal second-quarter revenue of $12.2 billion to $12.6 billion, and the midpoint implies around 12% sequential growth. That'd be about half fiscal Q1's 23% pace, which was itself under half of fiscal Q4's 51%.

"[W]e expect pricing to continue to increase modestly throughout the year," Visoso said on the earnings call.

I think the steepest part of the price rise is behind Sandisk. There's even a sign of buyers pushing back on price. Consumer revenue dropped 29% sequentially to $397 million, which Visoso attributed to the market adapting to higher pricing.

How cheap is the stock?

At around $1,150, Sandisk has a market value of about $165 billion. Shares trade for under 10 times adjusted earnings over Sandisk's past four reported quarters. Around its June peak, the stock traded at more than 70 times earnings by the same measure.

But Sandisk now earns much more a quarter than that four-quarter number shows. If every quarter matched the midpoint of the fiscal Q2 guidance, Sandisk would earn around $224 per share in adjusted earnings in a year. The stock trades for about 5 times these earnings.

At a price-to-earnings multiple so low, investors seem to expect Sandisk's profits to drop, probably when memory prices do. It's a reasonable worry. A year ago, the company's adjusted gross margin was around 30%.

Much of Sandisk's output is also spoken for. CEO David Goeckeler said around half of the company's bits (its units of storage capacity) for this fiscal year are committed under its multiyear customer deals, climbing to two-thirds for next year.

The company also bought back about 3.2 million shares for $5 billion in fiscal Q1, and it closed the quarter with $5.1 billion in cash and no debt.

In the end, the split itself isn't a reason to buy. But Sandisk's earnings keep climbing, and at about 5 times its annualized guided earnings, I think the stock price already reflects much of the slowdown in pricing. Of course, memory profits can drop fast when prices fall.

I'd be comfortable starting a small position at today's price. It's a stock best suited to investors who can handle big swings. And buying before Nov. 20 instead of after won't change what an investment is worth.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.