Why Super Micro Computer, Inc. Shares Skyrocketed

Is Super Micro Computer's jump meaningful? Or just another movement?

Jan 22, 2014 at 5:48PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Super Micro Computer (NASDAQ:SMCI) jumped more than 24% Wednesday after the server technology specialist's fiscal second-quarter result beat expectations.

So what: For the quarter, Super Micro's net sales grew 15.3% year over year to a record $356.4 million. That translated to adjusted earnings of $0.35 per diluted share, or nearly double the $0.19 per share Super Micro achieved in the same year-ago period. By contrast, analysts were expecting adjusted earnings of just $0.26 per share on sales of $333.5 million.

What's more, Super Micro stated that fiscal third-quarter sales should be in the range of $320 million to $350 million, with non-GAAP earnings per diluted share of $0.24 to $0.30. Analysts, on average, were modeling Q3 earnings on the same basis of $0.25 per share on sales of $317.36 million.

Now what: Today's results seem to validate management's claims when shares plunged three months ago, when they insisted the company was merely in a "transition period ahead of new technology." That transition is now well under way, but keep in mind shares don't look particularly cheap anymore at 36 times last year's earnings and 16 times next year's estimates. However, if Super Micro can continue growing earnings at a reasonable clip, it should have little trouble justifying its valuation to shareholders going forward.

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Fool contributor Steve Symington and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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