Super microcomputer(NASDAQ: SMCI) Stock prices have been on a rollercoaster in recent months. The tech stocks have quickly evolved from a popular artificial intelligence (AI) play to a risky investment that could not only take the boot off the market, S&P500but can ultimately be removed from the list. Over the past six months, the company has lost almost 60% of its market value.
But since the tech company announced a new accountant at BDO (the previous one resigned due to concerns about internal controls), there seems to be hope. While the stock is still far from recovering from these significant losses, the market appears more optimistic. So the question is: is it safe to invest in Super Micro stocks again?
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Super Micro Computer’s annual report, the 10-K filing, was due on August 29, and the company has yet to file it. Providing audited financial data can take time for a company, especially if the accountant is new, as opposed to an accountant who is already familiar with the company.
More importantly, with the appointment of BDO, Super Micro has submitted a compliance plan to the Nasdaq that should keep the stock exchange happy for the time being and prevent the shares from being delisted.
While investors appear to be cheering news of the compliance plan as shares have rallied in recent days, it’s only a temporary reprieve. BDO will still need to conduct a thorough assessment of the company’s financial situation. There is no guarantee that the auditor will be satisfied with the internal controls in place or willing to sign Super Micro’s annual report.
Super Micro may be behind on filing its annual and quarterly reports, but that hasn’t stopped the company from posting preliminary numbers. On November 5, the company released preliminary financial information for the first quarter of fiscal 2025 (which ended September 30), stating that net sales would be approximately $5.9 billion to $6 billion. This is at the lower end of previously issued guidance, where it expected revenue of about $6 billion to $7 billion.
While that may be low in terms of hitting expectations, it still represents an increase of about 180% from the same period a year ago, when revenues totaled $2.1 billion. On another positive note, the company says its gross profit margin will be 13.3%, which is an improvement over the 11.2% margin it reported in the previous quarter.
But should investors really trust Super Micro’s numbers when there are enough concerns about the company’s controls and processes that the previous auditor resigned over them? The preliminary numbers still show incredible growth, but with some dark clouds hanging over the company, I’d hesitate to put much faith in these results.
Super Micro still appears to be growing at a rapid pace, but if it has to change its processes and controls, that could impact how it accounts for revenue. That would also affect the operating result and valuation.
One important thing investors need to understand is that the server hardware sector is extreme thin margins. Although sales improved in the first quarter, there isn’t much room for Super Micro to hurt its financials and still look like a cheap buy. Right now it looks like a bargain, considering it’s trading at just eleven times next year’s earnings (based on analyst estimates). The stock could look like a bargain today, given the growth of AI and demand for servers.
But that’s only if you trust the company’s numbers, and right now that’s still a big ask. If the company has to revise its financials and adjust its reporting process, that could change its strong earnings numbers, and Super Micro could quickly go from a cheap stock to a very expensive stock.
The company may have a new accountant, but there is still significant risk that this is a sustainable option for most investors.
Consider the following before buying shares in Super Micro Computer:
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
Supermicrocomputer has a new auditor. Is it safe to buy the stock now? was originally published by The Motley Fool
