"Going from 88M to 700M in revenues, the company can't seem to bring down more than 43c/sh per year to the bottom line."
Paul Senior, mediocre earnings are to be expected in a relatively young business. The same was true for QUALCOMM for many years when most of its efforts went toward developing the CDMA system for wireless phones. However, the difference between QUALCOMM and SANDISK is that QUALCOMM has valuable proprietary technology which results in a large licensing and royalty business. SANDISK has insufficient proprietary technology, making it difficult to rely on for royalties.
In general, for young companies with a product line in a fast growing sector, the earnings per share do not reflect how well or poorly the company is doing. You get a better idea from total revenue, but even that is not a very good measure. I take these measures into account, but I also use the change in book value per share as a measure of change in shareholder wealth. That measurement gives a shareholder a better long term view of where the company is going. I also give a great deal of weight to adequate levels of cash flow, as that is a good indicator of whether the company needs to issue more stock or borrow heavily, either of which strategies can be tough on existing shareholders. On these last two criteria, SanDisk has been doing quite well, especially when compared with some of the high flyers in the area of fiber optics, telecommunications, and Internet related companies. When I see stocks like AMZN on the way up, despite the fact that they've never made money and have virtually no book value, I simply can't believe that more financially sound investments like SNDK won't recover.
Art |
