Everyone likes a comeback story. And after roughly doubling from recent lows, Super Micro Computer (NASDAQ: SMCI) seems to be shrugging off delisting fears intensified by the surprise resignation of its auditor on Oct. 30.
But the company isn’t out of the woods yet. Let’s go over the pros and cons of Supermicro to decide if its shares are a good investment.
Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »
Supermicro shares began declining sharply after hitting an all-time high of around $116 in March. The decline intensified in late August, when short-selling organization Hindenburg Research released a report accusing the company of accounting manipulation, conflicts of interest, and sanctions evasion related to the Russian invasion of Ukraine.
Shortly afterward, Supermicro delayed filing its annual report. And later its auditor, Ernst & Young, resigned, citing an unwillingness to be associated with its financial statements. Some analysts expected Supermicro to be delisted from the Nasdaq, an outcome that could hurt its stock price by scaring away institutional buyers and making its shares less liquid.
Supermicro has been acting quickly to turn the situation around — creating an independent special committee that released preliminary financial information and conducted an internal review that found “no evidence of fraud or misconduct on the part of management or the Board of Directors.”
The market finally started to show optimism when the company named a new auditor — BDO USA, P.C. — and submitted a plan to Nasdaq to stay listed. But while the situation looks encouraging, this isn’t a guarantee that Supermicro will remain trading on the Nasdaq. According to analysts at Mizuho cited by CNBC, Nasdaq will have to approve or deny the compliance plan, which could take two to five weeks.
In the meantime, investors should examine Supermicro’s financial results, which were prepared by the independent special committee. Although these unaudited figures should be taken with a grain of salt, they give important clues about the company’s operational health and valuation.
Although Supermicro’s preliminary fiscal first-quarter earnings (for the three months ended Sept. 30) fell short of expectations, the results would be considered fantastic for most companies. When numbers are finalized, net sales are expected in a range of $5.9 billion to $6 billion. The bottom end of that range is slightly outside of the bottom of management’s guidance of $6 billion to $7 billion, but it is more than double sales in the prior-year period.
