Should you buy a super micro computer after the stock split?

Vaseline7 days ago

0 5 minutes read

Should you buy a super micro computer after the stock split?

At the beginning of this year, Super Micro Computer, Inc. (SMCI) was on top of the world. The company’s server solutions have been in high demand thanks to the artificial intelligence boom. Investors were hungry for stocks riding the wave, and SMCI fit the bill.

The company’s high-performance, liquid-cooled servers are customized to handle the workloads of NVIDIA Corporationhis (NVDA) powerful GPUs. This helped put the Super Micro well ahead of the competition.

As a result, the stock surged 332% to a record high of $1,229 by March. It was also one of the best performing stocks in early 2024.

However, the stock has tumbled in recent months after the company was hit by wave after wave of bad news, including ugly allegations of an unscrupulous short seller and a Justice Department investigation.

So, in today’s 360 Squarewe’ll discuss the allegations and subsequent investigation facing SMCI and the catalyst that could help the stock rebound. I’ll also share if SMCI is a good buy right now… and where to learn more about another AI stock poised to rally following Elon Musk’s big event next week.

What happened to Super Micro?

On August 26, a notorious short-seller, Hindenberg Research, released a report alleging that Super Micro had committed accounting violations based on the story of a disgruntled former employee. Super Micro fell 8% but managed to recoup some of its losses.

Two days later, Super Micro announced it was delaying the filing of its annual 10-K report, sending the stock down 20%.

Then, on September 24, The Wall Street Journal reported that the Department of Justice (DOJ) had launched an investigation into Super Micro to investigate its accounting practices in light of Hindenberg’s report.

What it all boils down to is that a disgruntled former employee made claims of accounting violations and filed a whistleblower lawsuit against Super Micro Computer. And Hindenberg Research, being the unscrupulous salesman that it is, latched onto these claims and further muddied the waters with its report. All this hit SMCI shares.

In my opinion, short sellers are scumbags. Short-selling firms like Hindenberg issue this type of report with one simple goal: to cause stocks to fall. They make money from a drop in stocks. Then they take that money and run and never have any follow up reports.

Note that this report was issued in August when trading volume is usually light and nobody is around. So a stock is more likely to go down, and Hindenberg found the perfect opportunity with the Super Micro.

Personally, I don’t think there is any evidence to these allegations, but we’ll see what the DOJ determines, of course. It is unfortunate, however, that Super Micro Computer has been the victim of all these slanders and volatilities.

Meanwhile, Super Micro is buoyed by better-than-expected sales and earnings growth. But some investors are questioning whether they should buy SMCI on the decline — especially since there’s a potential catalyst…

I’m talking about Super Micro’s 10-for-1 stock split, which went into effect on Tuesday, October 1st.

So let’s discuss what exactly a stock split is… and why it may be tempting to buy SMCI right now.

What is a Stock Split?

A stock split is when a company decides to split shares of its stock into smaller units. From a fundamental perspective, it doesn’t change anything about the company or its value.

It only changes the number of shares you own.

Let’s say you owned 10 shares of Super Micro before the split. After Tuesday’s split, you should now own 100 shares. Each Super Micro share you own has been pre-split into 10 individual shares.

But the truth is that the value of the shares remains the same. A split does not affect you in terms of gains or losses. So why do this in the first place?

When a stock split is announced, the intention is to make it more accessible and attractive to individual investors. An average investor may not have the funds to invest in a stock that trades above $1,000. In fact, buying a few stocks can cause their portfolio to be over-allocated.

Again, nothing fundamentally changed in terms of the stock itself. But perception is everything, as they say. So a lower share price will make the stock seem more affordable and accessible to everyday investors.

I should also add that a split can attract more investors. So you will often see a post-split rally.

Case in point: According to Bank of America’s Research Investment Committee, stocks that have split have gained 25.4% in the year following a split, compared to the S&P 500’s 11.9% gain. You can see returns in the chart below.

Source: Statista

Is SMCI a buy?

Given SMCI’s stock split and its superior fundamentals, you may want to consider buying SMCI. So let’s take a look at what I have Stock grader (subscription required) must say.

As you can see, the Super Micro gets a fundamental grade of C, making it a Hold. This is because the company has seen some margin compression of late and has recently failed to beat high analyst expectations.

In addition, it has a quantitative grade of C. This means that buying pressure from “smart money”, i.e. institutions like hedge funds, pensions, etc., has slowed recently.

So, overall, Stock grader Currently, Super Micro offers an overall grade of C, which signals a hold.

What does this mean to you?

Conclusion: Stock grader say don’t buy SMCI…but if you own it don’t sell it either.

Super Micro will release its quarterly results on November 6. For the current quarter, earnings are forecast to double year-over-year to $7.51 per share, up from $3.43 per share in the same quarter a year ago. And revenue is forecast to grow 212.8% year-over-year to $6.46 billion.

If it can beat analyst estimates and provide positive guidance, I expect the stock to bounce back strongly.

A front-row seat to the next breakthrough in AI…

Now, I have been following Super Micro Computer for a while now and I recommend it in all my services. The fact is that the company is still a game changer in the AI Revolution.

But while we wait for the stock to rebound, there’s another AI breakthrough on the horizon…

On October 10, Elon Musk will unveil his long-awaited “Robotaxi” to the world.

Now, self-driving cars have been one of Elon’s biggest and boldest promises. So far, it has not been withdrawn. But my colleague at InvestorPlace, Luke Langofound a small, little-known supplier that could play a key role in making this happen.

In other words, this is your chance to get in on the ground floor of what could be Elon Musk’s next big thing.

And that’s why, on Monday, October 7th at 10am EasternLuke hosts a show to tell you everything you need to know.

You don’t want to miss it.

Click here to sign up and save your spot for Luke’s event now!

Sincerely,