Is Sandisk (SNDK -2.15%) stock overbought... and overpriced?
Worries over a Morgan Stanley report yesterday, which compared the percentage of the S&P 500 index that is Sandisk stock versus the percentage Sandisk occupies in the portfolios of large institutional investors -- and concluded Sandisk is "over-owned" -- spooked investors yesterday. By close of trading, Sandisk stock had fallen 9%.
As we approach the mid-day mark Wednesday, Sandisk stock continues to drift lower -- down 2.2% as of 11:30 a.m. ET.
Image source: Getty Images.
Over-owned versus under-owned
Morgan Stanley's number-crunchers did what they do, calculating percentages and concluding that certain tech stocks, including Apple, Microsoft, and Amazon, are all "under-owned" (because institutions don't own as much of them as S&P does). Other stocks, and Sandisk in particular, are conversely "over-owned" -- because they're more popular on Wall Street.
But here's the thing: Analysts surveyed by S&P Global Market Intelligence predict Apple will grow earnings at about 13% over the next five years, Microsoft at 16%, and Amazon at 21%. These are all respectable numbers, of course, but Sandisk is supposed to grow earnings at 40%.
That's nearly twice the growth rate of the "under-owned" stocks.
NASDAQ: SNDK
Key Data Points
Why Sandisk is popular
Not only that, but applying its growth rate to its price-to-earnings ratio of only 24, Sandisk stock sports a PEG ratio (that's its P/E divided by its long-term forecast growth rate) of just 0.6. That's a 40% discount off the 1.0 ratio that many value investors would consider a fair price for a stock.
At this price, it makes sense that Wall Street wants to own a lot of Sandisk stock. At this price, and at this growth rate, I kind of want to own Sandisk, too.
