Potential Escape for Super Micro Computer from substantial Hazard. Worthwhile to Consider Purchasing this Undervalued Share?
Super Micro Computer (SMCI) saw a favourable start to the year, gaining 188% in the initial half, surpassing industry leader Nvidia. The upward trend was attributed to the company's market dominance in artificial intelligence (AI) equipment, which led to a surge in orders for its data center equipment from AI clients, resulting in substantial revenue growth.
However, a series of unfavourable developments started to unfold a few months later, hampering Supermicro's impressive run. The company announced a delay in the submission of its 10-K annual report, which raised doubts about its continued listing on the Nasdaq. To add to the woes, the company's auditor, Ernst & Young, resigned in October, halting the financial filings process.
This week, Supermicro provided some positive news, sending the shares skyrocketing and fuelling investor optimism for a potential recovery story. The company announced it had hired independent auditor BDO U.S.A. and submitted a compliance plan to the Nasdaq. These actions may have averted a significant risk — delisting from the Nasdaq.
A 800% increase over a five-year span
Let's delve deeper into Supermicro's background. The company specializes in producing equipment such as servers and workstations for data centers. The surge in AI operations has driven a significant number of orders to Supermicro, enabling the company to record quarterly revenue this year that surpassed an entire year's revenue from 2021. Consequently, the stock has not only seen a notable increase in the first half but has also climbed more than 800% over a five-year period.
Moreover, Supermicro collaborates closely with major chip designers, swiftly incorporating their latest advancements into its systems. This partnership could open new opportunities for the company, such as benefiting from the success of Nvidia's upcoming Blackwell launch.
However, questions regarding Supermicro's financial reporting emerged in recent months, putting a strain on the stock's performance. Hindenburg Research published a short report alleging "serious accounting issues" and other concerns at the company. Subsequently, The Wall Street Journal reported that the Justice Department was conducting an investigation into the company — both Supermicro and the U.S. attorney's office declined to comment.
Ernst & Young eventually withdrew as Supermicro's auditor, expressing concerns about the company's accounting practices. Furthermore, Supermicro had already delayed its 10-K annual report and received a non-compliance notice from the Nasdaq.
Potential risk of Nasdaq delisting
The threat is a delisting, which would mean that Supermicro shares would be traded over-the-counter (OTC). OTC markets have less trading volume, making the stock more challenging to trade, possibly impacting investor appetite and potential future gains.
This week, however, with the hiring of a new auditor and the submission of a compliance plan, Supermicro might have cushioned this major risk—if it manages to comply with the plan and submit its financial reports, including the 10-K annual report and a 10-Q report for the most recent quarter, in a timely manner. In the filing, Supermicro stated that it aims to accomplish this goal, albeit without specifying a deadline.
Supermicro stated in the plan that it believes it can file within the discretionary period granted by the Nasdaq review committee. The stock will remain listed while the Nasdaq reviews Supermicro's plan.
Is this undervalued stock worth buying?
Given this latest development, is Supermicro a worthwhile investment? While the stock appears significantly undervalued based on current earnings and future prospects, trading at approximately 8x forward earnings estimates, the issue lies in the lack of recent, audited financial reports. This lack of clarity makes investing in Supermicro at the moment risky.
Investing wisely entails understanding a company's financial position and having access to all the most recent earnings data to support your decision. Without this information, investing in Supermicro currently carries too much risk.
In conclusion, due to the absence of recent audited financial data, it's premature to take a gamble on Supermicro — but that doesn't mean you should ignore this company entirely. The demand for Supermicro's products remains strong, and future prospects look promising, so once there's more transparency on the financial situation, this stock could once again become a promising long-term investment opportunity.
Despite Supermicro's impressive 800% increase in finance terms over a five-year period, recent concerns about its financial reporting and a delay in the submission of its annual report have raised doubts about its financial health. Investors interested in investing in Supermicro should carefully consider the lack of recent audited financial reports, as this lack of clarity makes investing in the company at the moment quite risky.
As the company works to address these issues and submit its financial reports in a timely manner, potential investors should monitor Supermicro's financial situation closely. If the company successfully navigates these challenges and regains transparency in its financial reporting, it could present an attractive long-term investment opportunity in the realm of technology and investing.
