SanDisk stock remains under intense pressure as the recent rally stalls amid profit-taking among investors. SNDK dropped to $1,565, down by over 33% from its highest point this year. This retreat may continue in the near term as bearish chart patterns form.
SanDisk stock has formed some bearish patterns
The daily chart shows that the SNDK stock has slipped in the past few days, and this sell-off may continue in the coming days. It has formed a double-top pattern at $1,805 and a neckline at $1,415. A double-top pattern often leads to more downside over time.
A closer look shows that it has formed a rising wedge pattern, which is made up of two ascending and converging trendlines. This pattern normally leads to a bearish breakout when the two lines are about to converge.
The Relative Strength Index (RSI) and the MACD indicators have continued falling in the past few days. Therefore, the most likely scenario is where it continues falling as sellers target the double-top pattern’s neckline at $1,420. A move above the double-top level of $1,805 will invalidate the bullish outlook.
SNDK stock chart | Source: TradingView
SanDisk’s business is thriving
While SanDisk has risky technicals, its fundamentals suggest that the company’s business is thriving amid the ongoing artificial intelligence boom.
The most recent results showed that the company’s revenue and profits are surging. Its revenue in the June quarter jumped by 372% to $9 billion. This revenue was much higher than what it made in the last financial year, a sign that its growth is accelerating.
A look at estimates shows that the company is expected to continue rising. The average estimate is that its annual revenue will hit over $48.9 billion this year followed by $57 billion next year. Chances are that the company’s real numbers will be higher than what analysts expect.
Its profits are also soaring, with the earnings-per-share expected to hit $214 this year from $70.8 in the last one. It will then hit $264 a share in the following year.
Most importantly, SanDisk has worked to cushion its business from the cyclical nature of the memory industry. It has done that by inking long-term deals with some of the biggest customers. These deals set the floor and ceiling of the prices. By focusing on the lower side, the company estimates that these deals will make it over $90 billion.
At the same time, SanDisk is trading at one of the best multiples in corporate America. It has a forward price-to-earnings ratio of just 7, much lower than other companies, including popular names like Nvidia and Micron.
The combination of strong revenue and profitability growth and its valuation explains why analysts are optimistic about its stock. The average estimate among analysts is $2,125, much higher than the current $1,633. Some of the top analysts who expect the stock to surge are from Citigroup, Susquehanna, Bank of America, and Cantor Fitzgerald.
The main risk the company faces is if the AI industry starts to slow down. It also faces the technical risks mentioned above.
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