Up 25% in the Last Week, Is It Safe to Buy Super Micro Computer Stock Again?
It's been a wild six months for Super Micro Computer (NASDAQ: SMCI).
The stock plunged in August as the company, best known for making high-density AI servers, said it would delay its 10-K filing. That admission came after short-seller Hindenburg Research accused it of accounting malfeasance and inconsistencies, and the company said it would not be able to file its annual report on time.
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The following month, reports emerged that it was being investigated by the Justice Department, and in October, the stock plunged as its auditor, Ernst & Young, resigned, underscoring the crisis at the company.
In November, Supermicro received a delisting notice from the Nasdaq stock exchange, which it was able to extend, and the company continued to say that it did not expect to restate any financial results when it finally filed the 10-K.
Finally, on Tuesday, Feb. 11, investors got an answer as to when that filing would come. Management said in its fiscal second-quarter earnings report that it would file the report by Feb. 25.
That news, and increasing investor confidence in the stock after it scheduled its second-quarter earnings report, helped lift the stock 25% between Feb. 5 and Feb. 12, potentially signaling that the worst is over from the financial reporting issues.
Is it safe to buy Supermicro stock? Keep reading to learn more.
Image source: Getty Images.
Q4 earnings get an adjustment
Supermicro's second-quarter earnings report represented its third straight round of unaudited preliminary financial numbers, meaning investors haven't gotten concrete results from the company since last May.
In the second-quarter report, management said that it would not restate any previously issued financial statements, meaning none that have been filed with the SEC. However, it has made adjustments to the fiscal 2024 fourth-quarter earnings report, which include an increase in net sales of approximately $46 million and an increase in cost of sales of approximately $96 million, resulting in part from an increase in inventory reserves of approximately $45 million. It also estimated an increase in operating expenses of about $5 million. As a result, it will reduce generally accepted accounting principles (GAAP) and non-GAAP earnings per share by $0.09, lowering adjusted earnings per share from $0.63 to $0.54.
Given the panic over the delay, that seems to be a relatively modest correction for the company, though it won't be fully clear until the report is filed. The stock initially popped on that news before giving back most of its gains during the regular trading session on Wednesday. It still finished up 3%.
Where Super Micro Computer stands today
In its preliminary second-quarter earnings report, Super Micro Computer reported another round of brisk growth, though results were short of estimates.
Revenue came in at $5.6 billion to $5.7 billion, reflecting 54% growth at the midpoint, which compared to the consensus at $5.94 billion.
Investor concerns about gross margin remained as that figure fell to 11.8% to 11.9%, down from 15.4% in the quarter a year ago, but its adjusted earnings per share of $0.58 to $0.60 was up 5% from the quarter year ago at the midpoint, though that was also below estimates at $0.75.
Looking ahead, the company cut its full-year revenue guidance from $26 billion to $30 billion to $23.5 billion to $25 billion.
Normally, a set of quarterly numbers like that would send a stock plunging, but investors seem to be relieved that Supermicro has finally set a date to file its fiscal 2024 report. Management also said that it expected to file its 10-Q for the first and second quarters by Feb. 25.
It also disclosed that it received subpoenas from the DOJ and SEC late last year following the short-seller report and that it is cooperating with the document requests.
Is it safe to buy Supermicro stock?
It no longer seems like the sky is falling for Super Micro Computer, but at this point, investors would be better off waiting to see if the reports are filed on Feb. 25 and if they have any other updates.
It's not certain that the filing will happen, and another delay could crush the stock.
If the filings happen on time, and there are no major adjustments, investors can return to judging the business on its performance rather than any accounting malfeasance. However, given the underwhelming second-quarter results, the company may now be facing a different set of challenges, at least if its growth continues to slow and its margins keep falling.
Investors should keep Feb. 25 circled on their calendar as the filings will go a long way to determining the company's future.
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Jeremy Bowman has positions in Super Micro Computer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
