What happened
Shares of semiconductor manufacturer Smart Global Holdings (SGH -0.81%) surged 8.9% through 12:15 p.m. ET on Friday after crushing Wall Street's earnings forecast last night.
Heading into its fiscal third quarter, analysts had forecast Smart would earn an adjusted $0.40 per share on quarterly sales of $375.5 million. In fact, Smart reported an adjusted profit of $0.66 per share, and sales of $383 million.
So what
Not all of Smart's news was good, however. For example, sales of $383 million beat estimates, but they were still down 17% year over year. Adjusted earnings exceeded expectations as well. But when calculated according to generally accepted accounting principles (GAAP), Smart actually lost $0.50 per share for the quarter.
And compared to last year's third quarter, even Smart's adjusted earnings suffered a 24% decline year over year.
Nevertheless, management called its results strong, highlighting a 230-basis-point improvement in adjusted gross margins, and using all the right buzzwords to get investors excited about the future. For example, CEO Mark Adams said Smart is "positioned to benefit from emerging trends in AI, machine learning, and data analytics."
Now what
But color me unconvinced. While Smart talked a good game last night, the company's forecast for the fourth quarter still seemed pretty weak. Management is projecting $375 million in sales for the current quarter, for example (plus or minus $25 million), which implies about a 14% year-over-year decline in the next report -- better than the third quarter, but still not great.
The good news is that management says GAAP earnings could return to positive territory -- $0.02 per share -- but the $0.15 per share plus-or-minus on that estimate means there's still a good chance Smart will lose money this quarter. Granted, next year could be better, with analysts forecasting more than $1 a share in earnings.
Still, with Smart stock trading about $29 a share after today's run-up (so 29 times forward earnings), and the company still unprofitable on a trailing-12-months basis, it's hard to call this stock cheap or a buy.
