Should You Buy Sandisk Stock Before Nov. 20?

Shares of tech company Sandisk (NASDAQ:SNDK) have been red hot this year, rising by more than 350% thus far. The business has performed exceptionally well, as the memory shortage has unlocked some tremendous opportunities for the company, which spun out from Western Digital back in February of last year.

Its stock price is well over $1,000, but that's going to change soon, as the company has announced an 8-for-1 stock split, and it will begin trading on a split-adjusted basis on Nov. 20. Should investors buy the tech stock before then?

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Stock splits don't fundamentally change anything

The big benefit of a stock split is that it brings a company's share price down. Theoretically, if an investor couldn't afford to buy full shares and fractional shares weren't available through their brokerage, a lower price would make the stock more accessible to them, as it would be easier to buy full shares of the business.

But many brokerages do allow investors to buy fractional shares, and the overall incentive to conduct a stock split just isn't significant, since it doesn't result in better per-share earnings numbers or make the stock look any cheaper. While the share price does come down as a result of a stock split, everything else adjusts accordingly. If a stock's earnings multiple was high before the split, it'll remain high afterward as well.

Even an investor's position in the business will remain unchanged. They will own more shares in the business following a split, but they'll also be valued at a lower price to adjust for the split; the valuation will be unchanged directly after a split. Many stocks trade at well over $1,000 and never do stock splits. It's a discretionary move that doesn't make a stock any better or worse of a buy.

Investors shouldn't expect the stock to surge after Nov. 20

A stock split isn't a huge catalyst for a stock. It might go up afterward, but it may just as easily go down. A bigger factor for Sandisk investors to consider is how long the shortage in memory and storage products will last. That's what's weighing on Sandisk and similar stocks these days -- not knowing how long demand will remain excessively higher than supply, and how long the impressive growth will last.

Sandisk looks like an incredibly cheap stock to own, with its price-to-earnings multiple being in single digits, but that's due to some exceptionally strong quarters of late. If that changes, the stock suddenly becomes much more expensive.

For investors who believe the shortage in memory and storage products could last years, as some analysts think it might, then Sandisk could be a great buy right now. But it's that outlook that is going to have a greater impact on the stock and its future returns than the stock split itself.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Western Digital. The Motley Fool has a disclosure policy.