Super micro computer (NASDAQ: SMCI) It was one of the most polarizing stocks to own this year. It started out as an AI company with huge potential, but has recently become a risky investment with questionable and possibly inflated numbers due to poor accounting controls and procedures.
Some investors believe the company has put to rest concerns about its business after a special independent committee of the board recently reviewed its operations and found no evidence of wrongdoing by management or the board. The stock is up again, but is still down more than 60% from its 52-week high of $122.90.
If the company proves doubters wrong, Supermicro could post even bigger gains in the coming weeks and months. Could a major rally be scheduled for 2025?
There were three main issues that appear to have affected Supermicro’s valuation this year:
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Company Gross margins I’ve shrunk. This is a big problem because without strong margins, its bottom line growth prospects get worse, and this can make the stock a much worse buy.
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Hindenburg Research, a prominent short-seller, issued a report in August alleging that Supermicro was engaging in accounting manipulation and was actively inflating its numbers.
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The company’s auditor, Ernst & Young, resigned in October, raising concerns about the company’s internal controls and exacerbating concerns about the reliability of its financial statements. The company was also late in reporting its quarterly and annual reports.
Technology stocks have fallen in recent months due to these concerns. But with the company recently announcing that it had found a new auditor at BDO and that a special committee found no evidence of wrongdoing, investors appear to be more optimistic about the stock lately since it has been rising in recent weeks.
In order for Supermicro to eliminate concerns about its business, at least for the most part, it needs to produce strong audited financial statements. If you can do this, you should win back many investors who might worry it’s too risky.
The company acquired an extension from Nasdaq To submit its financial statements by February 25. If its new auditor signs off on the annual results and the numbers look good and margins improve, this could be what the stock needs to regain investor confidence.
Until that happens, there will be some significant risks and uncertainty surrounding the stock. In its most recently completed filing, which was for the period ending June 30, Supermicro posted sales of $5.3 billion, up 143% year over year as demand for IT infrastructure, including cloud and server solutions, was incredibly strong.
Net income of $352.7 million also rose at a fairly high rate of 82%, even though the company reported a slight gross profit margin of only 11.2%.
If the company can prove these numbers to be true by submitting audited financial statements for the full year, and continues to grow its business at a high rate, there could be some big gains for the company. Technology stocks In 2025.
Investors were quick to buy into Supermicro following recent news that it had found a new auditor and positive results from the special committee. But the danger still exists. The company has not announced its financials yet, which is ultimately what matters most.
This has been an extremely volatile stock to own this year, and this trend may continue into 2025. While there has been no… new Bad news affecting the stock, investors should treat Super Micro Computer with caution. The best option at this point may be a wait-and-see approach with the stock.
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David Jagielski He has no position in any of the stocks mentioned. The Motley Fool recommends NASDAQ. The Motley Fool has Disclosure policy.
Could Super Micro Computer stock be the comeback story of 2025? Originally published by The Motley Fool