SNDK's recent profit surge is viewed as a temporary peak rather than a new normal, creating excessive valuation uncertainty that makes it a 'very difficult pile' to invest in.

Shares of one of them, SanDisk, rose by more than 650%. You are not hearing wrong.

SanDisk's profit margin reached 71%. These figures would have seemed impossible just two years ago .

One analyst set a target price for SanDisk at $2,400.

Shares of SanDisk and Western Digital also fell sharply after strong earnings results, because the good results were not enough to satisfy everyone.

AI-specific memory will remain scarce for a while, but the NAND flash memory that made SanDisk's stock jump 650% could be the first to see an abundance by late 2027.

Shares of SanDisk and Micron, which saw the biggest jump, traded at a price-to-earnings ratio of only 7 to 8 times their projected earnings for next year. Guys, this sounds like an unbelievable deal, doesn't it?

mistake. This low price is based on profits that have peaked. Profits have ballooned due to the crazy and unrealistic prices of temporary memory. Do you remember those profit margins that reached 71% and 86%?

This is almost certainly a temporary peak, not the new normal.

Okay guys, here's SanDisk. As I always say, I don't look at the stock price to determine the value of the company. I'm looking at the market value. This is the company's price, $280 billion .

It is the product of all outstanding shares and the share price. Next, I go to the trusted Enterprise Value. This tells me the market value plus debts minus cash. Basically, it's like: "If I wanted to buy this company completely without debt and without cash in the bank, this is what I would pay."

Guys, it's really good to see the value of the company less than its market value, and that's what we have here. That's a great sign of a strong balance sheet. Next, a quick note here.

Look at the rocket-like return on capital. This is an indication that the company is of high quality , as it achieves high returns on the money invested in it. This is wonderful.

Next, look at the cash flow. Last year, 11.5 billion. The 5-year average is 2.44 billion. So, you can see here that prior to last year, their average free cash flow was around half a billion dollars .

Therefore, this company has skyrocketed. But if you are counting on this to continue and it doesn't happen, it could be very costly. Because look at the average free cash flow rate for 5 years, 115.

So, if it goes back to the 5-year average, which is still higher than what they achieved 3 or 4 years ago, then you're going to have a problem. Next, look at these profit margins. 21% annually for the last 10 years, 24% for the last 5 , and 56% last year.

Guys, every time I see this, I say, "Oh my God." What could cause their profits to nearly triple compared to the 10-year average? That's an enormous number, especially when combined with all this revenue growth.

It's amazing, guys. It's great, but again, if you're betting on this rapid growth continuing , it always worries me. Okay, let's take a look at the eight pillars to see what questions we should be asking.

Good. Therefore, the outstanding shares are increasing. I don't blame them. If they think their stock is overpriced, I will issue lots of shares to generate cash, because it is better to give addicts what they want.

Now, remember that the 5-year price-to-earnings ratio and free cash flow rate are also not telling because of how much earnings and free cash flow have increased. If you believe this is a permanent level and that they will grow from here, ignore these two things.

So ignore them , because what does it matter? What matters here is what they will do from now on. And of course, net income is high, revenues are high, cash flow is high, debt is very low, and returns on capital are improving.

So again, guys, this sounds great if you believe they are at a consistent level. Let's see what analysts think about this company in the future. Well, it seems that analysts believe this is a permanent level.

Look at this growth, from $2.11 to $4.56 in earnings per share. Guys, at a price of $4.56, if you apply a P/E ratio of 20, that means a stock worth $9,000. A share worth $9,000.

Well, of course it sounds great. Regarding revenue, what's the issue here? This is what I find interesting. 49, 58 , then it dropped to 56, and now it's heading towards $100 billion.

Are they bringing a lot of factories into service here? I don't know, but that's a lot of growth to be counted on. Is this possible? certainly. Is this possible? This is the question we should be asking ourselves.

Okay guys, here we are . Our goal now is to run our stock analysis tool on SanDisk. Now, folks, when using a stock analysis tool, we make low, medium, and high assumptions for each company we want to study.

For SanDisk, my low-impact assumption is that revenues will decline for the next ten years. My high assumption is that these revenues will continue to grow explosively. Guys, you'll see a very wide range of values.

This makes it difficult for companies like these that have seen a huge jump in revenues and profits. It is very difficult to get a real figure for what they will achieve in the future.

As Warren Buffett says, "If I can't reasonably estimate what the company will achieve over the next ten years , I walk away." "It's a very difficult pile ." As far as I'm concerned, this is the situation with this company.

But that doesn't mean I shouldn't analyze it and take a look at it. Here are the assumptions I made. I have set low growth of -5 % per annum for the next ten years , and 10% and 25% as revenue growth.

Guys , you'll be amazed at how high these numbers are. Next, the profit margin. I put in 15%, 25% and 40%. Yes , they recently achieved 56%, but I assume a slight decline. Next, what price-to-earnings ratio should I allocate to this company after 10 years?

Well, their capital returns are improving , their balance sheet is great, and they're clearly leaders in this market, so I put 17, 20, and 23. Now, you might be wondering, "Okay, Paul, where did you get that from?"

Guys, I always start with the historical average of the S&P 500 index of 15 or 16, maybe 17 . I ask: "Is this company better than the average company in the S&P index?" If you say yes, I will set a higher price-to-earnings ratio.

If I say no, I will set a lower price-to-earnings ratio. I don't sit down and say, "It's a better company , so I'll give it 50 times the profits." But I still say: "Wait a minute, this is a prediction for the next ten years ."

Finally, my intrinsic value return rate is 9.5%. This is not the return I'm hoping for . It is simply a question: "What would be the value of this company if it matched the market return?"

Everyone will have a different desired return. Your return will be different from mine. Why? Because my situation is completely different from yours. You are in a completely different situation than me and anyone else.

So, for the purposes of this video, I want to clarify : "What is the intrinsic value that I see based on my assumptions?" So, press the analyze button. The share price is currently $1800 .

Hey guys, look at this. I have a low price at 170, a high price at 5400, and an average price at 965. This is probably the biggest margin I've ever seen.

As Warren Buffett says, "If I can't reasonably estimate what the company will achieve over the next ten years, I walk away." "It's a very difficult pile". As far as I'm concerned, this is the situation with this company.

What this means to me is that if they lose 5% of their revenue for the next ten years, its value would be about $170 per share today. If they achieve growth of approximately 10%, the value will be around $1,000, and if they achieve outstanding success, it will be $5,400.

The question you should ask yourself is: Is it all worth it ? If there is an 80% chance of it happening, you will do it without hesitation. If there is an 80% chance of it happening, you will avoid it like you would avoid the plague.

This is the essence of investing: to sit and ask yourself, "What are the chances of these things happening?" Of course, we don't know, but I'll tell you this: when there are companies whose revenues and profits have grown very rapidly based on a new kind of supply and demand, I always feel apprehensive.

When you look at a stock like SanDisk, which has risen 650% this year, with everyone on TV shouting that it will continue to rise, what value would you gain from having more clarity about the price you should pay?