With shares down 78% from an all-time high in March, Super microcomputer(NASDAQ: SMCI) could be one of the first dominoes to fall as the artificial intelligence (AI) hype cycle reaches a potential end. But so far, this crash has little to do with company fundamentals and seems more related to allegedly shady accounting practices and possible misconduct.
Let’s examine three factors to consider before considering a position in this controversial tech stock.
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The first recent sign of trouble for Supermicro came in late August when short seller Hindenburg Research – which stood to benefit financially from a drop in its stock price – released a report alleging that the company engaged in accounting manipulation, self-dealing and financial avoidance. sanctions related to That of Russia invasion of Ukraine. Last week, some of these accusations became stronger when Supermicros accountant Ernst & Young resigned and, according to Supermicro, said that “we are resigning due to information that has recently come to our attention which has resulted in us no longer being able to rely on the statements of management and the Audit Committee and our unwillingness to be associated with the financial statements prepared by management. ..”
To make matters worse, Supermicro is also reportedly under investigation by the Department of Justice, which is reportedly reaching out to the company’s former employees and others.
These developments won’t necessarily affect Supermicros operations. However, they could undermine its valuation by creating skepticism about the accuracy of reporting and potential fines that could be imposed if management is found guilty of misconduct. Unfortunately, that could be the best-case scenario for this increasingly embattled company.
Supermicros situation could get much worse. Public companies are mandatory have accountants and submit their financial statements to Certainly deadlines. The company does not meet both requirements, which puts it at risk of delisting from the Nasdaq.
After failing to file its annual 10-K report in August, management has until mid-November to submit a compliance plan, which (if approved) could push the deadline back to February 2025. However, Supermicro is still in a catch-22 because it not have an accountant, and the ongoing problems may make new companies hesitant to take on this role.
Wedbush analyst Matt Bryson highlighted the difficult situation in an interview with Bloomberg: “I think that they will probably end up being scrapped just because of the timelines involved. How do they get their 10-K out in a few months if they not have an accountant, and their last accountant resigned?”
Like Supermicro has been deletedshares would likely move to available without a prescriptionmarkets, which can be less liquid than traditional exchanges. However, this not should be permanent as companies can regain compliance and re-list. For example, the stock was delisted after failing to meet Nasdaq reporting deadlines in 2019, before being added back to the exchange in 2020.
Most of Supermicros The biggest near-term challenges could hurt valuation, not fundamentals, and earlier this week it released encouraging, if preliminary, news. On November 5, the company issued an update from its “independent special committee,” which suggested that net sales for the first quarter (the quarter ending September 30) $5.9 billion to $6 billion.
These figures are much lower than the management previous expectations of $6 billion to $7 billion, but these represent a growth of 180% compared to the $2.12 billion reported in the prior year period. Immediately future price-earnings ratio At 7.65, Super Micro Computer stock is starting to look like a good deal, but… Until there is more clarity, it may not be worth considering this speculative play.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Is Super Micro Computer Stock a Buy? 3 things to look at. was originally published by The Motley Fool
