Super micro computer (NASDAQ: SMCI)an AI server manufacturer, has taken investors on a wild ride over the past three months.
The company’s problems began with a short-selling report from Hindenburg Research at the end of August, which alleged a wide range of accounting irregularities. A brief delay in filing its 10-K application followed, and in September, the Department of Justice reportedly opened an investigation into the company. She also received a delisting warning Nasdaq stock market. Last month, the company’s problems came to a head when… auditorErnst & Young resigned, and also postponed the presentation of its 10Q10 data. It released preliminary results for the first quarter but was unable to release a full report, and the stock continued to rise, hitting an intraday low of $17.25 on November 15 before a deadline set by Nasdaq to remain in compliance. This represents a 69% decline from before the short seller’s attack.
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However, since then, Supermicro has had some redemption with investors as it appointed a new auditor and submitted a compliance plan to the Nasdaq. As of November 22, the stock is up 92% from its November 15 low.
Investors clearly see recovery potential in Supermicro stock, but if you’re considering buying it, you should understand the risks the company still faces. Let’s review some things you should know.
Investors cheered on November 18 when Supermicro announced it had appointed BDO USA as its new auditor, but that may be a bigger risk than investors think as BDO has faced its own regulatory problems.
For example, the company was fined $2 million last year for failing to properly examine revenue accounts in a 2018 audit.
The Public Company Accounting Oversight Board’s Audit Quality Report found significant errors in 54% of BDO’s audits from 2020 that it examined and 53% in 2021. BDO also said it has made investments to improve the quality of its audits, recognizing its past efforts. mistakes.
BDO’s own challenges do not suggest anything nefarious in Supermicro’s employment of them, but they may also leave room for doubt if and when Supermicro submits its pending reports. Nor does this negate Ernst & Young’s decision to resign as auditor, and its comment that it was “unwilling to be associated with the financial statements prepared by management.” That Ernst & Young also said it could not rely on management’s representations remains troubling.
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