Nothing Micro About Super Micro Computer's Price & Earnings Gains

Key Points

• Earnings growth accelerated in the past four quarters, beginning with 5% growth, then rising to 40%, 210%, and 223%.
• Revenue growth has gradually accelerated from 16% in the quarter.
• The company expects net sales in a range between $1.7 billion and $1.8 billion.

There are glamorous techs, such as cloud computing, networking, and cybersecurity firms, and then there are companies like Super Micro Computer NASDAQ: SMCI, which makes power boards, chassis, and other gear for servers and networks. 

But it doesn’t always take a “celebrity stock” like chipmaker Nvidia NASDAQ: NVDA to add alpha to a portfolio. Super Micro’s trading volume is more than double normal levels this month, as the stock trades 18% higher.

Super Micro, which has a market capitalization of $4.3 billion, putting it in the mid-cap territory, gapped up 12.50% on November 1, following the company’s consensus-beating first-quarter report. 

The San Jose, California, company earned $3.42 per share on revenue of $1.852 billion. That was an impressive gain of 79% on the top line, but a breathtaking gain of 490% on the bottom line. Earnings growth accelerated in the past four quarters, beginning with 5% growth, then rising to 40%, 210%, and 223% until rising even more in this quarter.

Revenue growth has gradually accelerated from 16% in the quarter that ended in March 2021, rising on a year-over-year basis in each quarter. 

Other highlights from the quarterly report included:

• Gross margin of 18.8% versus 17.6% in the fourth quarter of the fiscal year 2022 and 13.4% in the same quarter of last year.
• Cash flow provided by operations for the first quarter of the fiscal year 2023 of $314 million and capital expenditures of $11 million.

In the earnings release, CEO Charles Liang said the company’s past seven quarters of revenue growth is “about 10 times faster than the current industry average. It proves that our Green Computing and Total IT Solutions continue to gain customers’ acceptance and trust. We recognize the opportunities being driven by more demanding computing, storage, telco and AI workloads.

Super Micro is currently in the second quarter of fiscal 2023. For the current quarter, the company expects net sales in a range between $1.7 billion and $1.8 billion, above the consensus estimate, and net income between $2.64 and $2.90, above analysts’ consensus estimate of $2.58 per share. 

Raised Full-Year Guidance 

For the full fiscal year, which ends June 30, Super Micro raised its guidance for net sales from a previous range of $6.2 billion to $7.0 billion, to a range between $6.5 billion and $7.5 billion. It expects earnings per share to land in a range between $9 and $11.30. That’s higher than analysts had anticipated. 

According to MarketBeat earnings data, Super Micro has a long history of exceeding both top- and bottom-line views. 

That’s a good sign for the stock’s future, but keep in mind: It’s not uncommon for a small company like Super Micro to have sparse analyst coverage, and that’s the case here. MarketBeat analyst ratings reveal only six analysts covering the stock, and none are the big investment banks that underwrite offerings and manage merger and acquisition transactions.

Analysts’ consensus rating on the stock is “hold,” with a price target of $88, representing a 7.10% upside. 

Holding Gains From Cup Breakout 

The stock’s chart shows a cup-pattern breakout, which occurred on November 1 following the earnings report. Ths stock advanced 7.43% in the past week and 52.11% in the past month. Super Micro has been in rally mode since March, and has posted a year-to-date return of 86.96%. 

That kind of return is an indication that it’s not only the well-known, large-cap stocks that are worth of watchlist consideration. Of course, smaller stocks can be more volatile than larger counterparts, and that’s certainly the case with Super Micro, which has a beta of 1.27.