When I think of stocks with the potential to make millionaires, I typically picture high-growth companies with low valuations – two characteristics Super microcomputer (NASDAQ:SMCI) has in spades. However, the data center hardware manufacturer is cheap for a reason. Let’s explore whether or not the company can overcome the short-term accounting challenges to unlock explosive shareholder value.
Supermicro’s problem started on August 7, then short seller organization Hindenburg Research released a scathing report accusing it of accounting manipulation, self-dealing and sanctions evasion in connection with Russia’s invasion of Ukraine. The company later postponed the publication of its annual report, putting it at risk of delisting from the Nasdaq stock market.
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The situation worsened when Supermicro’s then-auditor, Ernst & Young, resigned on October 30, citing months of disagreements with management and an unwillingness to be associated with the financial statements. Overall, these developments have wreaked havoc on the stock price, sending shares down 76% this year from their all-time high of $119 in March. However, the company already seems poised to overcome some of these challenges.
On November 19, Supermicro appointed a new auditor, BDO, who will help the company file its annual report and implement its plan to return to Nasdaq compliance and avoid delisting.
There is still some uncertainty as the Nasdaq still needs to approve Supermicro’s plan to return to compliance, which is not guaranteed. However, if successful, this development could boost the company’s valuation. A delisting would affect the company’s liquidity and make shares less attractive to mainstream asset managers, who often avoid investing in shares listed on less regulated markets. over-the-counter exchanges.
The sooner Supermicro’s accounting situation is cleared up, the sooner the market will start paying attention to its great foundations. And the numbers look encouraging. Earlier this month, management published an unaudited update from its independent special committee, including preliminary financials for the first fiscal quarter.
Net sales are expected to be between $5.9 billion and $6 billion. While this is significantly lower than previous guidance of $6 billion to $7 billion, it represents a 180% year-over-year growth rate compared to prior-year period. Moreover, Supermicro has sufficient catalysts for further growth.
