2024-06-10 08:01:42 ET
Summary
- As expected in my last article on the stock, SMCI has had a time correction. I believe this is not yet over:
- Growth continues to be very strong and it is heartening to see leading revenue indicators grow at 40% YoY, with record high backlog levels.
- Increased competitive intensity and management's commentary on margin guidance and pricing strategy make me believe there is a risk to undershooting long-term gross margin targets.
- Together with lower expected margins, increased working capital intensity via higher inventories and lower payable days are a recipe for mild ROIC erosion.
- SMCI trades at a deserved premium to its peers due to a better growth profile, but I believe a 40% premium is too much for comfort. Technically, the time correction continues as there are no signs of strong buyers to resume an uptrend.
Performance Assessment
I had shared in my last update on Super Micro Computer ( SMCI ) my anticipation of a time correction in the stock. Hence, I had rated it a 'neutral/hold', expecting it to perform broadly in-line with the S&P500 ( SPY ) ( SPX ). Looking at the performance since then, I would say my view has played out as expected:
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Super Micro Computer: The Time Correction Is Not Yet Over