Super Micro Stock: Market’s Overreaction May Present a Hidden Buying Opportunity
2024.09.05 09:33
Super Micro Computer (NASDAQ:) is making a name for itself this year, to say the least.
After surging over 300% in the first two months, the company’s stock experienced a correction in March and April but then stabilized between $750 and $1,000.
However, since mid-July, the stock has faced a significant decline, dropping to $423.47 by Wednesday’s close.
All in all, the stock is now more than 65% down on its all-time high set earlier this year.
Why Have Super Micro Computer Shares Plunged Recently?
Super Micro Computer has faced a sharp decline in its share price over the past few weeks. The downturn began after the company reported a disappointing gross margin of 11.2% on August 6, down from 17% a year earlier.
This news led to a more than 20% drop in the share price the following day, despite the company also posting impressive year-on-year growth: sales surged 144% to $5.3 billion, and net income increased 82% to $353 million.
The margin decline was attributed to high supply chain costs and tight inventories of key components. Management has projected that increasing production by the end of 2025 will resolve these issues.
Source : InvestingPro
Further exacerbating the situation, a report from short-seller Hindenburg raised concerns about accounting practices and potential violations of export-related sanctions involving Russian and Chinese companies.
The report also led to the postponement of Super Micro’s next quarterly results, fueling investor panic and causing the stock to drop over 19% on August 28.
In response, Super Micro has denied Hindenburg’s allegations, calling the report’s claims “false or inaccurate.” The company plans to address these issues in detail soon.
Has the Market Overreacted?
Despite recent challenges, analysts view Super Micro’s current valuation as attractive. The stock’s P/E ratio of 13 is significantly below the S&P 500 average of 23 and far lower than Nvidia (NASDAQ:)’s 49.27, highlighting its undervaluation relative to its growth potential in the AI sector.
Additionally, the company is planning a 10:1 stock split on October 1, which is likely to make the shares more accessible and could potentially drive up the price.
Analysts are optimistic, with a consensus target price of $858.08, indicating a potential upside of over 102%. InvestingPro’s fair value estimate signals more downside for the stock, with the target at $378.97.
Source : InvestingPro
Analysts forecast strong growth ahead, predicting an EPS of $7.39 for the next quarter, up 115.45% year-on-year, with sales expected to reach $6.519 billion, a 207.5% increase.
Conclusion
While Super Micro Computer’s stock may have surged excessively earlier this year, the recent market reaction seems disproportionate.
With strong growth prospects, an attractive valuation, and an upcoming stock split, the current downturn might present a solid buying opportunity.
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Super Micro Computer shares were included in the Tech Titans ProPicks strategy at the end of 2023, allowing InvestingPro subscribers to capitalize on the 300%+ rally early in 2024.
Given the recent decline, does ProPicks still maintain a positive outlook on the stock?
To find out, join InvestingPro and check out the most recent ProPicks strategy update our earlier this week!
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
