Sandisk (NASDAQ:SNDK) has been the best-performing company in the S&P 500 and Nasdaq 100 indices this year. It has soared by 800% since January, and is up by 4,755% in the last 12 months.
This surge has turned it from a small Western Digital (NASDAQ:WDC) spin-off into a $323 billion company. And in a recent note, a Bank of America analyst predicted that it has more upside to go.
Bank of America Analyst Predicts Sandisk Stock Has More Gains
Wamsi Mohan, a top BofA analyst believes that Sandisk’s shares have more gains to go in the near term. He argued that the company will benefit from its shift in strategy to multi-year contracts, which will help it prevent cyclical fluctuations in its revenue.
He also noted that it will have strong pricing power as demand for chips continues to rise. He boosted his target for Sandisk from $1,550 to $2,100, saying, “Reiterate Buy on valuation, beneficial joint venture partnership, share gains, and long-term potential for industry consolidation."
Other Wall Street analysts have maintained their bullish outlook for the company. Mizuho hiked the target from $1,825 to $2,200, while Cantor Fitzgerald hiked from $1,800 to $2,900, representing a 32% increase from the current level. The most optimistic analysts are from Susquehanna, who believe it will jump to $3,250.
SNDK Stock Faces Some Key Risks
Despite the ongoing optimism, Sandisk stock has some major technical and fundamental risks. One of them is that it has slowly become an overvalued company, with its forward P/E ratio rising to 33. This multiple is higher than other companies like Nvidia (NASDAQ:NVDA) and Micron (NASDAQ:MU), which have multiples of 22 and 18.
There is also a risk that the soaring memory prices will lead to higher production by some of its competitors like Micron, Kingston Technology, and Kioxia. Such a move will lead to higher volume and lower memory prices over time.
It also faces some technical risks. The weekly chart shows that the stock has formed a bearish divergence pattern. This pattern has formed as the Relative Strength Index (RSI) has continued falling as the stock has continued soaring. In most cases, this divergence normally leads to more downside over time.
Sandisk stock chart | Source: TradingView
The other risk is that the stock is much higher than its historical averages. Its stock is at $2,184, higher than the 50-day moving average of $1,458. This means that it may go through a mean reversion, where an asset moves back to its historical averages.
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