Why Q1's worst stock may fall even further

Trading Q1's worst stock

SanDisk investors must be glad that the first quarter is over.

With a 35 percent drop since the start of the year, SanDisk was the worst S&P 500 stock in Q1.

And the bad news is that traders and analysts see no reason to believe that a turnaround is ahead.

A sampling of phrases contained in the titles of research notes released over the past week tells a bit of the story: "Struggles Continues" [sic] (Stifel); "Downgrading SanDisk to Neutral" (BTIG); "Lowering Estimates" (Piper Jaffray); "Maintain Reduce" (Nomura); "Downgrading to Hold" (Evercore ISI); "This One Doesn't Look Pretty" (Ladenburg Thalmann); "More Bad News to Come" (Wedbush); "Cutting Numbers on Latest Glitch" (Drexel Hamilton).

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For their part, Goldman Sachs added SanDisk to its conviction buy list on March 10, before taking the stock off the list just over two weeks later, on March 26. The stock lost 19 percent during that period, getting crushed after the company withdrew its full-year 2015 guidance, warning that its full-year revenue would be lower than previously forecast. The company also canceled a planned investor day, which is rarely a good sign.

The stock hasn't evaded the attention of short sellers, either; 7.7 percent of the stock's float is short, according to FactSet (compared with just over 1 percent for peers EMC and Western Digital).

Andrew Harrer | Bloomberg | Getty Images

Betsy Van Hees, who covers the stock for Wedbush Securities, had a simple answer when CNBC asked her whether there's any reason for investors to maintain hope: "for the 2H of 2015, unfortunately, no."

Van Hees points out that SanDisk has already lost some of its Apple business to Samsung, and notes that The Korea Times now reports that Samsung has now struck a deal with Google, edging out SanDisk once again.

"We are concerned, given the significant improvement in Apple's relationship with Samsung and SanDisk's commentary regarding product qualification delays, that market shares losses could accelerate," Van Hees wrote in a note slashing her price target on the stock while maintaining Wedbush's "neutral" rating.

Some are finding ways to maintain hope. Ruben Roy of Piper Jaffray, who reduced his earnings estimates and price target while maintaining an "overweight" rating, said he is "telling investors that this one will take some patience."

Since the stock is now trading at what he perceives to be a decent valuation, however, Roy says downside is limited, and adds that "the silver lining, which is difficult to picture today, is that the EPS leverage in the model works both ways."

Taking a technical tact, Richard Ross of Evercore ISI advises investors to stay far away from the troubled SanDisk chart, projecting downside to $50, still more than 20 percent below current levels.

And indeed, there is no reason to believe that a better Q2 is ahead just because the stock has fallen (actually, that thinking would somewhat resembles the Gambler's Fallacy, a classic error in human probabilistic reasoning).

The worst-performing stock in the fourth quarter was Transocean, which fell 43 percent; in the just-completed quarter, it shed another 20 percent.