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Why SMART Global Is Soaring Today

By James Brumley - Oct 13, 2021 at 2:05PM

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The computer memory maker appears unfazed by the global semiconductor shortage and brewing DRAM glut.

What happened

Shares of computer component company SMART Global Holdings ( SGH -1.21% ) are up nearly 16% as of mid-day Wednesday in response to solid fiscal fourth-quarter results posted after Tuesday's close.

So what

For the three-month stretch ending in late August, SMART Global Holdings turned $467.7 million worth of revenue into operating income of $31.7 million, or non-generally accepted accounting principles (GAAP) earnings of $2.16 per share. Both were marked improvements from the COVID-crimped comparable quarter a year earlier when the company only earned $0.82 per share on sales of $297.0 million. More importantly, last quarter's top and bottom lines both topped their estimates of $461.3 million and $1.60 per share, respectively.

Rising bar chart with blue arrow trend line.

Image source: Getty Images.

Guidance for the quarter now underway bolstered today's bullishness. SMART Global foresees revenue of between $440 million and $480 million for the first quarter of fiscal 2022, setting the stage for operating earnings of between $1.80 and $2.20 per share. Analysts are only collectively calling for a top line of $458.6 million and a consensus profit of $1.49.

Now what

Despite yesterday's report from TrendForce suggesting dynamic random-access memory (DRAM) prices are apt to fall in the foreseeable future, fans and followers of SMART Global Holdings aren't deterred.

And rightfully so. The generalized DRAM (and NAND) memory markets may be saturated and headed into a glut. But SMART Global's highly specialized solutions are custom-built for the unique needs of the Internet of Things market or the modular memory needs of data center operators. In either case, this tech company enjoys relatively modest competition and above-average pricing power. It also enjoys persistent demand, addressing must-have markets like enterprise networking and military applications.

Sure, shares may be due for some quick profit-taking following Wednesday's surge. Don't be penny-wise and pound-foolish, though. After a multimonth rally, this stock has been moving sideways since April. Even with today's big gains, it's still just as close to the lower end of its recent range as it is to the upper end. There's still room for upside built on proven growth prospects, with only a modest amount of near-term downside risk mostly linked to market volatility.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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