SanDisk Corporation (SNDK) — I last featured this manufacturer of flash-memory storage products in the Trade of the Day on March 11 with a recommendation to sell SNDK stock short at $83 with a downside target of $70. That objective was hit in just over two weeks, resulting in a return of 16%.
While the company reported strong second-quarter results, management left revenue guidance for the full year unchanged. This led Credit Suisse to say SanDisk’s 2015 sales and income are likely to come in below the Street’s estimates. Credit Suisse analysts have a “neutral” rating on SNDK stock.
Capital IQ considers shares a “hold,” primarily based on valuation. However, its analysts note potential risks include greater-than-expected price erosion for memory products, slower-than-expected adoption for solid-state devices, increased competition and weak end-market demand. They estimate SanDisk will report 2015 earnings of $3.09 per share this year, down from $4.23 in 2014, before rising to $4.31 in 2016.
Technically SNDK stock is in an extended bear market. There was little in the way of positive price action to confirm a turnaround in the company’s earnings.
The downtrend has been characterized by rallies that fail to break a downtrend line that began in December 2014 at over $105 and is currently at $56.25. Buying volume is less on rallies than selling volume, and MACD is sluggish.
Sell SNDK stock short at $55 with a trading target of $45 for a potential gain of 18%. But keep in mind that as a short seller you will be responsible to pay a quarterly dividend of $0.30 per share if you hold through the next ex-dividend date in late October. Additionally, shorting is a speculative technique that is not suitable for all investors. Check with your broker for any special requirements, including the ability to borrow shares, and place a stop-loss order to protect against potentially unlimited losses.