Sandisk Trades at 43 Times Earnings and 7 Times Next Year's Earnings Estimates. What Has to Go Right for the Cheap Number to Win?

Shares of memory maker Sandisk (NASDAQ: SNDK) fell 10.8% on Friday, then another 11% on Monday, closing at $1,278.23. There was no company news behind either drop. Memory and artificial intelligence (AI) infrastructure stocks sold off as a group, and Sandisk, one of the biggest winners of the past year, fell harder than most.

The decline puts a spotlight on one of the stranger valuation puzzles in the market right now. Measured against its earnings over the past 12 months, Sandisk trades at about 43 times. Measured against what analysts expect over the next 12, however, it trades at about 7. Same company, same stock price -- the only thing that changes is which earnings you divide by.

Both calculations do honest math. They just describe different companies: the one Sandisk was a year ago, and the one analysts are betting it is becoming.

Image source: The Motley Fool.

Why the backward-looking number runs hot

Sandisk sells NAND flash storage, the chips that hold data in smartphones, in laptops, and, increasingly, in the drives that AI data centers run on. Storage pricing has surged over the past year as AI demand ran into a supply base memory makers had kept deliberately lean, and Sandisk's earnings have been rebuilt quarter by quarter as a result.

Consider the staircase. In its third quarter of fiscal 2025 (ended March 28, 2025), Sandisk posted a $13.33-per-share loss (most of it a $1.8 billion goodwill write-down, though the company lost money on an adjusted basis, too) with gross margin at just 22.5%. Three quarters later, it earned $5.15 per share on a 50.9% gross margin.

And in its third quarter of fiscal 2026 (ended April 3, 2026), it earned $23.03 per share as gross margin reached 78.4%. Revenue hit $5.95 billion, up 97% sequentially and 251% year over year. Data center revenue alone was $197 million in the year-ago quarter. It just came in at $1.47 billion.

So the trailing 12 months blend a money-losing memory company, a recovering one, and the earnings machine that exists today. Most of the roughly $30 in earnings per share behind the stock's backward-looking multiple arrived in a single quarter. Dividing the share price by that blend produces the 43. The figure makes the stock look far more expensive than its current earnings power suggests.

That's the easy half of the puzzle. The harder half, and the one I care about, is the 7.

What the cheap number assumes

At Monday's close, a forward multiple of about 7 implies analysts collectively expect somewhere around $180 in earnings per share over the next 12 months.

Set that against management's own forecast. Sandisk guided for fiscal fourth-quarter revenue in the range of $7.75 billion to $8.25 billion, and it put non-GAAP (adjusted) earnings per share at $30 to $33. Results are due Wednesday, Aug. 5.

Run the midpoint of that forecast for four straight quarters, and it works out to about $126 per share of annual earnings power. Analysts' estimates for the next year sit more than 40% above that pace.

In other words, the cheap multiple doesn't just assume the guided quarter lands. It assumes earnings keep climbing well beyond it -- which, in the memory business, means NAND prices keep rising into 2027.

The bulls have a real argument. Sandisk has signed five multi-year supply agreements under what management calls its new business model, with customers making firm financial commitments years out (terms meant to keep pricing from collapsing the way it has in past downturns). The company also carries a zero-debt balance sheet.

Of course, the year-ago quarter is the counterargument. A company earning $23 per share when pricing is tight was losing money just a year earlier when it wasn't -- on a gross margin less than a third of today's. Swings that wide cut in both directions.

So which number should investors trust? The 43 is a rearview mirror pointed at a company that no longer exists. But the 7 isn't a discount the market forgot to correct, either. It's the fee investors are charging for cycle risk -- and the fee is that large because the risk is, too.

The stock has now given back about 46% from its record high of $2,354.39, and the two-day slide shows how quickly conviction in this story can wobble. If the Aug. 5 report delivers the guided step-up and pricing holds through the fall, the cheap number starts winning the argument on its own.

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.