SNDK is a sell; growth driven by temporary price spikes in commodity memory is unsustainable.

And now, folks, the first stock we recommend selling from Morning Star is SanDisk. Its figures seem almost unreal. Revenues rose by 372% with a staggering gross margin of 84%, up from just 26% a year ago.

Guys, gross margin means that for every additional unit they sell, and for every dollar that comes in, 84 cents of that goes directly into net profit before taxes and general expenses.

Compared to a year ago, the percentage was 26%. This is enormous.

So why does Morning Star say it should be avoided? Okay, here's the optimistic viewpoint first. Artificial intelligence is leading to an explosion in demand for storage. Its data center activity alone doubled in just one quarter.

SanDisk has secured long-term deals covering about half of next year's production and about two-thirds of the production the year after that to make its sales more stable.

However, the pessimistic outlook is precisely the reason why it is a sell-off stock. Two out of every three dollars of its recent growth came from higher prices, not from selling more products.

This type of memory is a commodity, and history tells us that when supply catches up with demand, prices and market margins can collapse with astonishing speed. It is very difficult to maintain such margins.

Note this; its consumer business actually declined by 32% this quarter. Therefore, not every part of the company is thriving.

So, let's take a look at that. Guys, a company worth $281 billion, the company's value is actually less than its market value, which means they have more cash than debt. They achieved $11.5 billion in free cash flow last year, compared to $2.5 billion for the previous five years.

Huge returns on capital. 44.5 percent last year alone.

Guys, but look at this profit margin. 21% annually over the past ten years, 24% for the past five years, and 56% last year. You have to ask yourself if this is sustainable. It is certainly a question worth asking.

Let's take a look at the eight pillars. Just like Broadcom, they issued additional shares and I don't blame them for that because they sell at insane multiples. The 5-year price-to-earnings ratio and the 5-year price-to-free cash flow ratio are definitely a "fault" sign.

Let's check the analysts' estimates. Well, it seems that analysts believe this company's profits are skyrocketing. From 212 to 450 per share. Guys, at a price-to-earnings ratio of 20 here, this would make the company's stock price $9,100 if it happens.

That's a huge number, especially considering how much the share price is? 1800 today?

What about revenue growth? What's interesting is that it only doubles. But how were they able to double their revenues while profits increased so much? They assume that this margin will remain the same.

That might happen. The question is, are you willing to bet on that?

So, let's open up our stock analyzer and take a look at my previous assumptions. Now, guys, I did it the way Broadcom probably should have done it. I conducted a 10-year analysis.

My assumptions for revenue growth are -5, 10, and 25%. This will have a very wide range of prices, guys. Just get ready for this trip. I used a profit margin of 15%, 25%, and 40%.

So, as you can see, I assumed a return to their five-year average. Then, the earnings multiple after 10 years from now is 17, 20, and 23. And my return is 9.5 percent. I pressed the analyze button.

Hey guys, look at this price range. 170 on the low side, 5400 on the high side, and 960 in the middle.

So guys, this company is basically a tempting deal if I assume all my top assumptions are correct. This is perhaps a leap into the unknown. This does not mean that it cannot happen.

But if you invest in every company assuming it's the best, you're likely to end up underperforming.

Now, before we finish our analysis of Darden, consider SanDisk with its revenues up by 372%. This is exactly the kind of thing that makes people rush to buy at the wrong price.