Super Micro Computer Stock Hasn't Priced in Growth Yet

Key Points

• Super Micro Computer stock shows a potential undervaluation scenario for investors to consider, especially as future growth is not priced in yet.
• A simple ratio can tell investors how much discount to future EPS growth there may be, and where the upside lies.
• Institutional investors are already buying into this recent quarterly earnings decline, knowing that it's only a speedbump.

Speculation and news headlines aside, there is a pretty simple way for investors to know whether a stock has priced in its future growth yet or not, creating a reliable manner to measure whether they should stay invested in a company through the hard times or whether it is time to liquidate and go hunting for the next best deal. This can all be done with a single ratio.

This ratio is widely used amongst Wall Street professionals. The price-to-earnings-growth (PEG) ratio attempts to measure where a stock’s valuation is today relative to where analysts believe tomorrow’s earnings per share (EPS) growth can be.

Any reading below 1.0x in this ratio suggests that not all growth has been priced in, meaning more upside potential could be had in the future.

For shares of Super Micro Computer Inc. NASDAQ: SMCI, this ratio gives investors a clear-cut answer as to whether they should worry about the recent price action after the company reported its latest quarterly earnings report. It connects the dots as to why the financials seemed negative initially, but are a quiet bullish signal for savvy investors going forward.

Why Super Micro Computer’s PEG Ratio Signals Growth Potential

For Super Micro Computer, the markets are placing a forward price-to-earnings (P/E) ratio of only 14.0x today, giving investors very little information. However, when combined with future EPS forecasts, specifically the forward EPS readings for $3.13, the PEG ratio can become one of the most important anchors in this name.

All told, Super Micro Computer stock offers a PEG of only 0.6x today, meaning that roughly 40% of the company’s future expected EPS growth has yet to be priced into today’s valuation metrics.

This gives investors meaningful upside should they include this company in their portfolios.

Of course, the technology sector in the United States has been red hot lately, with the growth and adoption of artificial intelligence and all the lateral plays that are born out of it. With the growing demand for data centers and semiconductors, Super Micro Computer holds a special position in both industries, contributing to a broader market trend.

This is why analysts feel comfortable forecasting so much growth to begin with, but also why $1 billion worth of institutional buying has taken place over the most recent quarter, despite the stock falling after announcing its earnings results and now trading at only 66% of its 52-week high levels.

Leading the pack in this new buying were those from Disciplined Growth Investors Inc., holding 1.6% of the company through a $476.9 million stake. This is a vote of confidence for investors to consider moving forward and a potential confirmation that this discounted PEG could provide additional upside potential.

Data Center Demand Fuels SMCI’s Long-Term Growth Outlook

Now that investors understand this bullish setup, they can begin to see where the other dots start to connect as well. For instance, over the past month, 2.6% of the company’s short interest was wiped out as a sign of initial bearish capitulation, as short sellers know how unfavorable it would be to bet against this company’s future.

However, there are still $5.3 billion worth of open short positions, enough to create what’s known as a “short squeeze.” This event happens when a stock rallies aggressively enough to force short sellers into closing their positions at a loss, which also involves buying back the stock they borrowed to sell short.

In other words, a short squeeze creates additional buying pressure for a forceful move higher, and this time, there is enough room for upside in Super Micro Computer for this to be the case. Specifically speaking, Wall Street analysts have honed in on a consensus on where EPS could be headed.

At the heart of this growth discount is the forecast for 74 cents in earnings to be reported by Super Micro Computer in the fourth quarter of 2025, a significant jump from today’s reported 41 cents in earnings.

As most investors know, EPS growth typically drives stock price growth.

This is especially true when the current price does not reflect this future projection whatsoever, a phenomenon that investors can take advantage of today with Super Micro Computer stock, especially as demand for more efficient data centers grows across the United States, calling on the company’s services to help fulfill this new vision.