Earlier this year, Super micro computer (Nasdaq: SMCI) Rule with Nvidia As the best performing stock in the market. Supermicro advanced 188% in the first half, while Nvidia rose 149%.
Why has this 30-year-old company suddenly jumped into the limelight? The equipment maker, which provides items such as servers for artificial intelligence data centers, has seen its profits rise amid the AI boom.
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But that growth story has waned recently as the company’s problems have begun to pile up, all of which has sent the stock down more than 60% since late August. A short report alleged problems at Supermicro, a newspaper article talked about a possible Justice Department investigation, and, most recently, Supermicro’s auditor Ernst & Young resigned from his job.
At the same time, Supermicro has fallen behind on financial reporting and, several weeks ago, said its 10K annual report would be late. Just this week, the company said it would not be able to file its report for the quarter ending September 30 on time. Have Supermicro’s problems deepened?
First, a few details on the various headwinds, starting with the short report released in late August. In the document, Hindenburg Research alleged a variety of problems, including “glaring red flags related to accounting.” It is important to keep in mind that at the time of the report, Hindenburg was holding out Short position At Supermicro, so he will benefit if the stock goes down. This bias makes it difficult for investors to rely on Hindenburg as a source of information regarding the equipment maker.
The Wall Street Journal An investigation into Supermicro launched by the Department of Justice was later reported. Both the US Attorney’s Office and the company declined to comment.
Finally, auditor Ernst & Young recently resigned, after calling into question the company’s internal controls in July, saying he was “unwilling to be associated with the financial statements prepared by management.” Supermicro’s board appointed an independent special committee to review the situation, and the committee recently said: “There is no evidence of fraud or misconduct on the part of management or the board.” Although the committee has not formally completed its review, these words represent some good news for Supermicro and its shareholders.
Meanwhile, Supermicro has informed the Securities and Exchange Commission (SEC) that it will delay filing its application 10-K Annual ReportThis is a move that prompted Nasdaq to send the company a letter of non-compliance. Supermicro now has until November 16 to file or submit a plan to regain compliance. Failure to comply ultimately leads to delisting, an outcome that would certainly be bad news.
If Supermicro is delisted, the shares will trade over-the-counter (OTC). Volume is lower in the OTC market and transaction costs are higher, and this may affect demand for the stock. Moreover, delisting would further shake investors’ confidence in the company’s management.
Now we come to the latest news: Supermicro said this week that it will also not be able to file its 10th quarter quarterly report on time. This is not necessarily a surprise because the company does not currently have an auditor and must hire an auditor to review the financial statements included in the 10-Q. As Supermicro noted in its filing with the SEC, a 10-Q cannot be filed before a 10-K annual report.
Does this mean the problems have deepened for Supermicro? Not necessarily.
As mentioned earlier, it was clear that without an auditor, Supermicro would remain at a standstill when it came to financial reporting. So the problems the company faces today are the same as they were when Ernst & Young resigned two weeks ago.
Hence, what could help Supermicro in the near term is to find a new auditor so that the company can advance its reporting. Without this, it will be very difficult for Supermicro to continue attracting investors. After all, investors want to get a clear picture of a company’s financial health before investing in a stock. Without an auditor and therefore financial reporting, Supermicro may be on its way to success Nasdaq Delisting – Another situation that will hurt demand for the stock.
Although Supermicro has become a leader in the AI equipment market and could have a bright future ahead, all of these elements add a lot of uncertainty to the story at the moment. As an investor, the best thing you can do is keep this player on your watchlist – perhaps for a moment in the future when the situation improves – and watch this story from the sidelines.
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Adria Cimino He has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Nvidia. The Motley Fool has Disclosure policy.
Have Super Micro Computer’s problems deepened? Originally published by The Motley Fool