A stock that just doubled in a month is life-changing for existing investors, attractive for onlookers, and scary for those looking to get in at current prices. Sandisk (SNDK) is one such stock, up almost 100% in just a month and up roughly 1,000% in six months. The company is known for its various memory devices, and the reason for SNDK stock’s surge is the ongoing demand for and shortage of memory products in the market.
There are multiple ways to look at the question of buying SNDK stock now. But one reason why the rally could be expected to continue is the way the industry reacts to such demand. Right now, the memory industry is facing extremely high demand. Usually, any industry would scramble to increase its production capacity to protect its market share. However, chipmaking isn’t just another business. It requires manufacturing at a high level of precision and technologies that not every company can acquire, certainly not a fresh entrant. Moreover, slight changes in global supply and demand can have a huge impact on memory chip prices.
Chipmakers are already well aware of the boom and bust cycle of this industry. Less than a year ago, the same industry was struggling to deal with an oversupply of the same product in the market. Therefore, industry leaders are unlikely to give in to the temptation of rushing to increase capacity despite the fact that demand is likely to stay in the foreseeable future.
For investors, this means the pricing power and margins are likely to stay. Whether those stable margins are fully priced in or not is the million-dollar question and requires a deeper look at Sandisk stock’s valuation.
Sandisk makes data storage devices and solutions using NAND flash technology. The firm sells its products globally and is an integral part of the supply chain of devices like PCs, smartphones, tablets, wearables, and even automotive applications. Sandisk is based in Milpitas, California.
SNDK stock is up 100% year-to-date (YTD), outperforming many benchmarks and peers by a long way. According to a report by Bloomberg, shorts have already lost over $3 billion in the stock’s upward move.
Here’s one perspective for those entering SNDK stock right now. A rally like this reaches its peak way before the public euphoria and optimism does. If SNDK stock were near its peak, you wouldn’t be able to know that by asking the investor standing next to you. But you can look at the stock’s valuation to see how far stretched it has become.
