What happened
Shares of electronic components manufacturer SMART Global Holdings (SGH -0.95%) closed up 17.8% today, pushed higher by fiscal third-quarter results posted after Tuesday's close, and further buoyed by bullish comments from research outfit Jefferies (JEF 0.02%).
So what
For the quarter ending in May, SMART Global turned $437.7 million worth of revenue into operating income of $35.5 million. That top line was 56% higher year over year in comparison to the first COVID-crimped quarter, shrugging off the current chip shortage. Adjusted per-share earnings of $1.39 were up nearly 100% for the same reason. Notably, last quarter's top and bottom lines beat expectations of $415 million and $1.09 per share, respectively. Company-supplied guidance says the current quarter's numbers are expected to grow comparably.
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The scope of that beat and guidance were enough to prompt Jefferies analyst Mark Lipacis to pen a note to clients suggesting SMART Global is an "under-the-radar transformation play." The stock's sizable rally for the day indicates that Jefferies' clients (as well as other investors) agree with Lipacis.
Now what
The earnings beat comes as no true surprise to those familiar with the technology company. SMART Global Holdings has now topped earnings estimates in six consecutive quarters, pushing past the headwind created by the coronavirus outbreak. The stock's brush with record high prices on Wednesday underscores the idea that investors believe in the company's prospects. In this vein, the consensus target of $69 and Lipacis' price target of $72 are both still above Wednesday's closing price of $56.02, leaving room for more upside.
The sheer size of today's gain, however, also leaves shares ripe for profit-taking. Interested investors looking for an entry point now might want to wait to step in on a pullback from this overextended ticker.
Just don't wait too long, as there's plenty of value packed in that is bigger than the overheated chart. Shares are now priced at only 10.8 times next fiscal year's projected earnings, which is a bargain by almost any standard.
