Is the Super Micro Computer right for you?

Super Micro Computers Inc. NASDAQ:SMCI It’s been a stellar year-to-date performance after shares of the technology company rose to record highs. Its impressive year-to-date gains have caught the attention of traders, spectators and investors, as the stock has offered exceptional opportunities in the world’s hottest sector.

Initially, the catalyst behind the stock’s multi-month breakout was the release of preliminary financial results in the fiscal second quarter, which ended December 31. The company posted results that greatly exceeded previous expectations, as revenue was expected to be between $3.6 billion and $3.65 billion. well above the previous forecast of $2.7 billion to $2.9 billion. This led the stock to rise more than 36% and reach new all-time highs.

However, the stock continued to rise in the following weeks and gained enormous popularity in the financial and investment community. Year to date, the stock is up more than 253% and nearly 950% from a year earlier.

This staggering increase, against a backdrop of better-than-expected earnings for the semiconductor company, now raises the question: can the stock continue to rise? Is it overvalued, undervalued or mispriced? Let’s take a closer look.

What is Super Micro Computer (SMCI)?

Super Micro Computer, led by CEO and founder Charles Liang, is a trusted technology leader with a 30-year history, specializing in advanced computing solutions for data centers, cloud providers and enterprises.

Under Liang’s leadership, SMCI has become a key player in manufacturing computers tailored for use in data centers, supporting functions such as website hosting, data storage and artificial intelligence applications.

Operating in over 20 countries, SMCI has achieved global relevance, boasting solid financial performance characterized by consistent revenue growth, a healthy profit margin above 10% and stable debt levels. With favorable valuation metrics compared to industry competitors, SMCI consolidates its position as a reliable and financially sound technology partner.

Snapshot of SMCI fundamentals

Super Micro Computer announced its earnings data on January 29, 2024, reporting impressive earnings per share (EPS) of $5.59 for the quarter, beating the consensus estimate of $4.94 by 65 cents. The company also beat revenue expectations, earning $3.66 billion versus analysts’ estimates of $2.80 billion, marking a notable 103% increase in revenue year-over-year.

Over the past year, Super Micro Computer has generated earnings per share of $12.81 (diluted earnings per share of $12.81), with expected growth of 15.01% over the next year, forecasting earnings growth of 19 .66 at $22.61 per share.

The company has a P/E ratio of 78.38 and a Forward P/E of 27.83. SMCI’s market capitalization stands at a whopping $56.15 billion and the stock is also a member of the Russell 2000 Index. Notably, before the stock retreated more than 20% from its 52-week high on Friday, it had a RSI of 99, indicating that it had become extremely overbought. However, after Friday’s pullback, the RSI dropped to 66.21, meaning the stock is no longer in extreme overbought conditions.

Could the pullback be a long entry?

As the RSI suggested this week, the move towards $1,000 per share was largely exaggerated and perhaps caused by intraday short positions combined with long chasers who fell victim to the spike of euphoria and the fear of missing out. However, with the RSI now back in the 60s and the stock falling significantly, a long-term opportunity may present itself shortly.

If the stock can continue to retreat along with its RSI and then consolidate over time stabilizing in price, it could give its crucial moving averages a chance to converge. Such price action would indicate that the price discovery has been satisfied and that there is a solid risk: reward opportunity preparing for a stable upward move.

However, in the immediate term, unless the stock continues to drop another 20%, the best course of action for a potential investor is to wait for volatility to decrease and for price discovery.

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