Insider Michael Marks Buys into SanDisk's Low

On Friday October 26, 2007, Michael E. Marks, a director of SanDisk (SNDK), purchased 50,000 shares of SNDK at prices ranging from $40-41. The purchases were occasioned neither by option exercise nor by a 10b5 trading plan. Marks’s SEC filings make for instructive reading.

The Situation

At $43, SNDK is trading somewhat above its 52-week low, and roughly at its low from last summer. It has already bounced off support at $40, somewhat above the March low. Volume has been moderate, except for the earnings release on Oct. 19, when it plummeted. Since the beginning of October, it has lost 20% of its value.

The Company

Most readers are familiar with SanDisk, the leader in Flash memory technologies. The highly profitable company has a forward P/E of 34.693%, a PEG of 1.06. Quarterly revenue growth YoY was 38.1%.

On Oct. 19, the company released quarterly earnings of .54, beating the Street by almost 60%. Fears over the possibility of a steep falloff in the Flash market prompted a selloff, followed by a gentle slope downward to last Thursday.

The Insider

Michael E. Marks seems to think this is temporary, having put up $2MM of his own cash the day after SNDK hit bottom. Marks is an experienced hand in Silicon Valley, having run Flextronics during its 90s bull run, which he followed with a spell at the KKR corral. He sits on the boards of a variety of tech companies, among them Sun Microsystems (JAVA).

It’s instructive to compare JAVA’s chart with SNDK’s, because Marks’s last outright insider purchase was in early August, when JAVA was trading at a 52-week low. Since then, the stock is up 20%, near its previous highs. SNDK is the opposite; it was peaking in August, and is now in the basement.

Summary

This is a solid company with volatile earnings. Despite stellar results in the last quarter, the Street has priced SNDK down 30% off its August high, a clear overreaction. The only reason not to buy in at these levels would be a justified concern over short-term returns, since long-term growth in this segment is certain. The fact that a director who is himself an expert on the industry is evidently not concerned should lay that fear to rest.