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.
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