SMCI Stock Study (8-28-24)

Posted by Mark on October 20, 2024 at 06:54 | Last modified: August 28, 2024 12:25

I recently did a stock study on Super Micro Computer Inc. (SMCI) with a closing price of $547.64.

M* writes:

     > Super Micro Computer Inc provides high-performance server technology
     > services to cloud computing, data center, Big Data, high-performance
     > computing, and “Internet of Things” embedded markets. Its solutions
     > include server, storage, blade and workstations to full racks,
     > networking devices, and server management software. The firm follows
     > a modular architectural approach, which provides flexibility to
     > deliver customized solutions. The Company operates in one operating
     > segment that develops and provides high-performance server solutions
     > based upon an innovative, modular and open-standard architecture.
     > More than half of the firm’s revenue is generated in the United
     > States, with the rest coming from Europe, Asia, and other regions.

Over the last 10 years, this large-size company has grown sales and earnings at annualized rates of 20.0% and 31.5%, respectively. Lines are mostly up, straight, and parallel except for YOY sales dip in ’20 and EPS declines in ’16, ’17, and ’18 [FY ends 6/30]. Ten-year EPS R^2 triggers the audit flag at 0.64, and Value Line gives an Earnings Predictability score of 50.

Over the past decade, PTPM falls from 7.3% in ’15 to 2.5% in ’20 before rallying to 8.5% in ’24 for a last-5-year mean of 6.3% [no peer or industry data available]. ROE traces a similar pattern falling from 16.4% in ’15 to 8.1% in ’20 then rallying to 23.9% in ’24 for a last-5-year mean of 19.5%. Debt-to-Capital ranges from 2.5% in ’19 to 30.3% in ’22 with a last-5-year mean of 17.2%. Of 10 peers listed by CFRA, Super Micro Computer’s 23.2% is below the 30.2% median.

Quick Ratio is 2.2 and Interest Coverage is 58.7 per M* who awards a “Narrow” (quantitative) Economic Moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 89.9% and 18.5% for ’25 and ’26, respectively (based on 10 analysts).
• Zacks projects YOY 87.4% and 15.3% for ’25 and ’26, respectively (3 analysts).
• Value Line projects 37.5% annualized growth from ’23-’28.
• CFRA projects 76.2% YOY and 43.1% per year for ’25 and ’24-’26, respectively.

My 15.0% per year forecast is below the range.

With regard to EPS growth:

• MarketWatch projects 36.5% and 31.2% per year for ’24-’26 and ’24-’27, respectively (based on 19 analysts).
• Nasdaq.com projects 11.0% YOY for ’26 (1 analyst).
• Seeking Alpha projects 4-year annualized growth of 43.4%.
• Argus projects 5-year annualized growth of 15.0%.
• YF projects YOY 56.7% and 29.8% for ’25 and ’26, respectively (11), along with 5-year annualized growth of 62.4%.
• Zacks projects YOY 51.6% and 22.7% for ’25 and ’26, respectively (4), along with 5-year annualized growth of 31.1%.
• Value Line projects 31.5% annualized growth from ’23-’28.
• CFRA projects 48.6% YOY and 41.7% per year for ’25 and ’24-’26, respectively.

My 15.0% per year forecast is at bottom of the long-term-estimate range (mean of five: 36.7%). Initial value is ’24 EPS of $20.09/share despite being up 75.8% YOY.

My Forecast High P/E is 17.0. Over the last decade, high P/E ranges from 11.0 in ’22 to 61.2 in ’24 with a last-5-year mean of 27.2 and a last-5-year-mean average P/E of 17.7. I am near bottom of the range (only ’22 is less).

My Forecast Low P/E is 6.0. Over the last decade, low P/E ranges from 3.2 in ’23 to 18.1 in ’18 with a last-5-year mean of 8.2. I am forecasting near bottom of the range (only ’23 is less).

My Low Stock Price Forecast (LSPF) is $380.00. Default ($265.20) based on initial value given above seems unreasonably low at 78.0% (46.8%) less than the previous close (52-week low). My forecast is 30.6% less and 67.7% greater, respectively.

These inputs land SMCI in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 4.1%.

PAR (using Forecast Average—not High—P/E) of -3.7% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR but even that is less than current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 117 studies (my study and 44 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 20.0%, 20.0%, 27.2, and 8.2, respectively. I am lower across the board. Value Line’s projected average annual P/E of 35.0 is double that of MS (17.7) and triple mine (11.5).

MS high / low EPS are $45.96 / $17.84 versus my $40.41 / $20.09 (per share). My high EPS is less due to a lower growth rate. Value Line’s $45.00 is in the middle.

MS Low Stock Price Forecast (LSPF) of $226.00 implies Forecast Low P/E of 12.7: greater than the above-stated 8.2. MS LSPF is 54.5% greater than the default $17.84/share * 8.2 = $146.29 resulting in more aggressive zoning. MS LSPF is still 40.5% less than mine, however.

With regard to valuation, PEG is 0.53 and 1.6 per Zacks and my projected P/E, respectively: fairly valued on average. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely high at 1.59.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR of 15.0%, which is 10.9%/year greater than mine.

Super Micro Computer is a perplexing stock study for multiple reasons. With the stock down 37.4% in the last three months, I would expect MS LSPF closer to current price (if not INVALID). Such is the opposite with MS LSPF much lower than mine. Even with other studies also overriding default, the earlier the study date the closer to my number their LSPF should be.

Besides LSPF, projected future P/E is also perplexing. P/E range for the stock is ~ 6 to 25 from ’15-’22. In ’23 we get a low P/E of 3.2 and in ’24 we get a high P/E of 61.2. Are we suddenly in a new range? Value Line suggests “yes” with a 5-year average annual P/E of 35. I just think it’s too soon to tell.

The other long-term estimates (arithmetic mean 38.0%/year) seem to support Value Line’s 5-year average annual P/E. I’m not buying into the sky-high growth rate so soon and neither does MS (20.0%).

Analyst 12-month stock projections are strange with the lowest (of 19 analysts covered by CNN Business) at -53.4%. I routinely collect but rarely mention these data since analysts are notorious for bullish bias. Nevertheless, I can never recall a low projection of this magnitude. As potential caveats, -53.4% may not be so bad with the stock up 91.9% YTD and 684% over the past two years. It also may be a single downside outlier.

The final mysteries are why Nasdaq.com reports: 1) only one; 2) extremely low estimate (11.0%). The stock is not short on analyst estimates. MarketWatch projects 36.5%/year (albeit for two years) while YF and Zacks project > 50% YOY for ’25. I don’t recall ever seeing this combination of circumstances.

Per U/D, SMCI is a BUY under $456. BI TAR criterion is met ~ $344/share given a forecast high price of $687 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).