Monday, July 21, 2008

based on the 3/31/08 10q, and with Sandisk (SNDK) trading at monday's open at $18 per share, the stock is trading at just over 2 times balance sheet cash ($8 per share) and 0.66 times enterprise value (EV) to four-quarter trailing sales. In addition, the stock is trading at 6 times enterprise-value to four-quarter trailing cash flow and 11 times enterprise value to four-quarter trailing free-cash-flow.

Hard to believe SNDK is that cheap.

looking at the valuation of SNDK at the March '03 low before it began its three-year run from $7.50 to $80 in Jan '06, and in March '03 at the nadir of the tech bear market and for the stock, SNDK was trading at 1.5 times EV to four-quarter trailing sales, 7 times EV to four-quarter trailing cash from ops and 10 times EV to four-quarter trailing free-cash-flow, thus "relatively" anyway, SNDK is cheaper today than in March '03.

The operating leverage with the capex and the pricing sensitivity is a killer for the stock.

NAND flash pricing has just been murderous thanks to the capacity additions over the last two years. Kass went short SNDK last fall at much higher prices thanks to the additional Samsung capacity. (What a great call that was...) Intel (INTC) said in their call that NAND flash pricing was bad in q2 '08, but they managed through it, and it didn't detract from INTC's quarter as in q4 '07 and q1 '08.

If you are a value investor and you like beaten-up names with solid cash-flow, SNDK might be for you.

Even if NAND flash pricing just stabilizes, SNDK will benefit from cell phone growth.

Semis have been horribly frustrating the last st two years. We've been trading in and out of the group. Their correlation with overall technology capex and trading action has been far lower than the 1980s and 1990s.

Position: Long SNDK, INTC

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