Super Micro Computer (NASDAQ:SMCI) has wavered this year and is underperforming the broader market. It has risen by 3.9% this year, while the blue-chip Nasdaq 100 and S&P 500 indices have jumped by double digits. It remains 75% below its all-time high.
SMCI Stock Has Become a Bargain
Super Micro’s performance has made it a bargain on various multiples. Benzinga data shows that the company has a forward price-to-earnings ratio of 10.97, lower than the technology sector median of 23. Its five-year average is 17.
Additionally, the company’s forward PEG ratio has dropped to just 0.38, which is also lower than the industry median of 1.28.
In contrast, Dell (NYSE:DELL) has a forward P/E ratio of 24, while Hewlett Packard Enterprise (NYSE:HPE) has a multiple of 16. Lenovo, another top competitor in the AI server industry, has a multiple of 18.
Super Micro Computer’s discount is because the company continues to face some major challenges despite its revenue growth. These challenges explain why its short interest has jumped to 15%.
One of the risks is that its top executives, including its founders, were accused of smuggling Nvidia (NASDAQ:NVDA) chips to China, raising some governance concerns. Just recently, Taiwan expanded the smuggling probe.
At the same time, its debt has jumped. It ended the first quarter with over $2 billion in short-term debt, up sharply from $75 million in the same period last year. Its long-term debt jumped to over $2 billion, while its convertible notes soared to $4.6 billion. The company’s free cash flow was minus $6.6 billion.
Super Micro Computer to Publish Earnings This Week
The next important catalyst for the SMCI stock will be its earnings, which will come out on August 11. These results will provide more information about its business growth and margins, which have continued expanding.
With the AI boom continuing, analysts predict that its revenue will come out at $11.5 billion, up by 100% from the same period last year. Its guidance for the current quarter is expected to be $12 billion, up by 140% YoY.
Similarly, the earnings-per-share is expected to surge from 41 cents to 96 cents, solidifying its margin expansion.
Despite these growth metrics, analysts have a mixed opinion on the Supermicro stock. For example, Mizuho’s Vijay Rakesh recently lowered his target from $44 to $34, while Raymond James slashed from $45 to $39. Goldman Sachs has a sell rating on the stock.
Technicals Suggest that SMCI Stock is at Risk
Supermicro stock chart | Source: TradingView
The weekly chart shows that the stock has moved sideways in the past few months. It formed a strong bottom at $19.50, its lowest level in November 2024 and March this year. As a result, it has formed a descending triangle pattern, a common bearish sign. It also remains below the 50-week moving average, a sign that bears remain in control.
Therefore, there is a risk that the stock will have a bearish breakout after its earnings. If this happens, it may drop and retest the support of $24. However, a move above the moving average of $33 will invalidate the bearish outlook.
Image: Shutterstock
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