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News Digest / Analysis & Ideas / SMCI Stock Faces Short-Term Pressure Despite Strong Fundamentals

SMCI Stock Faces Short-Term Pressure Despite Strong Fundamentals

Alex Vellor
08:44am, Tuesday, Mar 19, 2024

Photo: Supermicro Green Computing Park, Wikimedia

Super Micro Computer Inc. announced plans on Tuesday to sell 2 million shares, potentially raising $2 billion, causing a 9% drop in its pre-bell trading shares. Despite a more than threefold increase in its shares since January, outperforming Nvidia's AI-driven Wall Street rally, the company's stock has fallen 16% over three sessions. The fundraising, aimed at expanding inventory, manufacturing, and R&D, could boost shares to 58.6 million, with Goldman Sachs possibly buying 300,000 more.

Technical Analysis of Super Micro Computer, Inc. (SMCI)

Super Micro Computer, Inc. (NASDAQ: SMCI) experienced a notable decline in its last trading session on March 18, 2024, closing at $1,000.68, which marked a 6.38% decrease from its previous close. This decline followed an announcement of the company's inclusion in the S&P 500, a move that despite generally being a positive signal, resulted in a sell-off possibly triggered by "sell-the-news" investor behavior. The stock's price fluctuated between a low of $952.06 and a high of $1147.7899 during the session, indicating significant volatility.

SMCI 3-month chart on StockInvest.us

The stock's technical indicators show a mixed signal. With a 14-day RSI of 60, SMCI is neither in the overbought nor in the oversold territory, suggesting a neutral momentum.

The stock is currently trading significantly above its 50-day moving average ($705.5276) and 200-day moving average ($380.18396), indicating a strong bullish trend over the medium to long term. However, the substantial decline and its proximity to the resistance level of $1004 suggest potential short-term consolidation or correction.

The MACD (Moving Average Convergence Divergence) of 124.24 is also indicative of the positive momentum over the past three months, though the recent price drop could signal a need for cautious observation in the near term.

Fundamental Analysis and Market Context

Metric Value
Earnings Per Share (EPS) $12.83
P/E Ratio 78
Market Capitalization $55.97 billion
Trading Volume 11.09 million shares

Recent news surrounding Super Micro Computer's entry into the S&P 500 generated mixed reactions. Despite the broader positive sentiment around AI stocks and a year-to-date stock price increase of 250%, the entry into the S&P 500 led to substantial selling pressure. Investors might have perceived the event as an opportunity to lock in gains, contributing to the stock's pullback.

When compared to its peers, SMCI's financial ratios reveal both strengths and weaknesses. The company's gross profit margin and net profit margin are below the industry average, indicating room for improvement in profitability. However, its operating profit margin and ROE outperform many peers, highlighting effective operational management and profitability from equity. The PE ratio suggests a higher market expectation of future earnings growth relative to many competitors.

Short-Term Outlook and Predictions

Given the recent volatility and the stock's reaction to its S&P 500 inclusion, it may face further short-term pressure as traders and investors reassess their positions. However, support at $975.52 could provide a floor, potentially limiting further downside in the next trading day and week.

The high volatility indicated by the ATR (Average True Range) of 10.02 also suggests that price swings are likely to continue in the near term.

Long-Term Investment Potential

Considering the DCF (discounted cash flow) value of $48.90, which is significantly lower than the current trading price, and the wide range of analyst target prices (with a consensus at $633.33), there appears to be a divergence in views regarding the stock's long-term intrinsic value. This disparity suggests that while some see long-term potential, others caution against overvaluation.

The company's strong fundamentals, driven by its position in the rapidly growing AI sector, coupled with its recent inclusion in the S&P 500, signal positive long-term prospects. However, investors must consider the high P/E ratio and the potential for market corrections.

Investors already holding the stock may benefit from retaining their positions to capture long-term growth, while potential investors should approach with caution, looking for clearer signals or market corrections before initiating new positions.

About The Author

Alex Vellor