Unlocking Explosive Shareholder Value: The Case for Super Micro Computer
When it comes to stocks with the potential to make millionaires, I’m drawn to fast-growing companies with undervalued prices. Super Micro Computer (NASDAQ: SMCI) checks both boxes, but its cheap valuation comes with a warning sign. The data center hardware maker faces near-term accounting challenges that need to be addressed before it can unlock its full potential.
A Perfect Storm of Challenges
Super Micro’s troubles began on August 7, when short-seller Hindenburg Research released a damning report accusing the company of accounting manipulation, self-dealing, and sanctions evasions related to the Russian invasion of Ukraine. The situation escalated when Super Micro delayed releasing its annual report, putting it at risk of being delisted from the Nasdaq Stock Market.
The company’s auditor, Ernst & Young, resigned on October 30, citing months of disagreements with management and an unwillingness to be associated with its financial statements. As a result, Super Micro’s stock plummeted 76% year to date from its all-time high of $119 reached in March.
A Glimmer of Hope
However, there are signs that Super Micro is taking steps to overcome its challenges. On November 19, the company named a new auditor, BDO, which will help it file its annual report and regain compliance with the Nasdaq. While there’s still uncertainty surrounding the Nasdaq’s approval of Super Micro’s plan, this development could boost the company’s valuation.
The Importance of Regaining Compliance
A delisting would severely impact Super Micro’s liquidity and make its shares less attractive to mainstream asset managers, who often avoid investing in stocks listed on less regulated exchanges. The sooner Super Micro resolves its accounting issues, the sooner the market will focus on its impressive fundamentals.
Stellar Fundamentals
Management recently released unaudited preliminary financial data for its fiscal first quarter, which showed net sales are expected to be between $5.9 billion and $6 billion. Although this is below prior guidance, it represents a remarkable 180% year-over-year growth rate compared to the same period last year.
Catalysts for Continued Growth
As a server maker, Super Micro benefits from high-demand products created by its suppliers, such as Nvidia and Advanced Micro Devices. The company is well-positioned to capitalize on the growing demand for artificial intelligence (AI) graphics processing units (GPUs). With the release of new AI chips from Nvidia and AMD, Super Micro’s growth potential is significant.
A Millionaire-Maker Stock in the Making?
With a forward price-to-earnings (P/E) ratio of just 6.3, Super Micro’s stock is incredibly cheap compared to its triple-digit growth rate. While investors should exercise caution due to the accounting-related uncertainty, the company’s unaudited first-quarter results demonstrate a business with clear millionaire-maker potential.
Risks and Considerations
However, Super Micro’s core operations aren’t immune to potential fallout from the legal and regulatory uncertainty surrounding the company. Suppliers and customers may shift orders away to avoid disruptions, which could impact the company’s growth. Investors should carefully weigh the pros and cons before considering a position in the stock.
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