Is SanDisk Ready to Explode Higher?

With shares of SanDisk (NASDAQ:SNDK) trading around $60, is SNDK an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

SanDisk designs, develops, and manufactures data storage solutions in a range of form factors, using its flash memory, controller, and firmware technologies. Its removable cards are used in a range of consumer electronics devices, such as mobile phones, digital cameras, gaming devices, and laptop computers. SanDisk’s embedded flash products are used in mobile phones, tablets, ultrabooks, eReaders, GPS, gaming systems, imaging devices, and computing platforms. For computing platforms, it provides storage solutions known as solid-state drives that can be used in lieu of hard disk drives. The products that SanDisk provides allow for consumers and companies worldwide to operate at increasing efficiency. These storage products will be in demand at growing rates due to the rising technology expectations of businesses and people around the world.

T = Technicals on the Stock Chart are Strong

SanDisk stock has seen a powerful move towards higher prices over the last several years. The stock is now trading near a critical price level that has been rejected a couple of times in the past. Can it break above this time? Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, SanDisk is trading above its rising key averages which signal neutral to bullish price action in the near-term.

SNDK

(Source: Thinkorswim)

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Taking a look at the implied volatility (red) and implied volatility skew levels of SanDisk options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

SanDisk Options

38.58%

96%

95%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on SanDisk’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for SanDisk look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

47.83%

-23.33%

-67.71%

-95.10%

Revenue Growth (Y-O-Y)

11.21%

-2.25%

-10.09%

-24.93%

Earnings Reaction

-6.64%

2.51%

2.7%

10.31%

SanDisk has seen decreasing earnings and revenue figures over most of the last four quarters. From these numbers, the markets have been upbeat with most of SanDisk’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has SanDisk stock done relative to its peers, OCZ Technology (NASDAQ:OCZ), Intel (NASDAQ:INTC), STEC (NASDAQ:STEC), and sector?

SanDisk

OCZ Technology

Intel

STEC

Sector

Year-to-Date Return

38.94%

-26.70%

21.05%

-30.83%

11.55%

SanDisk has been a relative performance leader, year-to-date.

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Conclusion

SanDisk provides valuable and essential data storage solutions that engage with many technology products used and increasing rates by consumers and companies worldwide. The stock has been on a powerful surge higher that has led it to a critical price level. Over most of the last four quarters, earnings and revenue figures have declined, however, investors have been upbeat about earnings announcements. Relative to its peers and sector, SanDisk has been a year-to-date performance leader. Look for SanDisk to OUTPERFORM.

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