Shares of Super Micro Computer (SMCI +18.96%) have been rising today as investors are excited about its latest quarterly results. The company, which sells servers and other tech infrastructure necessary for the artificial intelligence (AI) build-out, posted not only strong revenue growth, but its bottom line improved significantly.
After posting such stellar numbers, has it become a no-brainer buy for growth investors?
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Sales, margins, and profits all improved significantly
In the fourth quarter, which ended June 30, Super Micro's numbers looked terrific across the board. The following table summarizes just how well the tech company performed in terms of sales, gross profit, and net income.
| Metric | Current Quarter | Prior-Year Quarter | % Change |
|---|---|---|---|
| Net Sales | $11,119,777 | $5,756,911 | 93% |
| Gross Profit | $1,942,631 | $544,102 | 257% |
| Net Income | $1,165,129 | $195,154 | 497% |
Table by author. Source: Company filings. Figures in thousands.
The company's gross margin, which has been a major concern in the past, improved considerably, coming in at 17.5%, up from around 9.5% a year ago. That played a significant role in the company's improved bottom line. At its previous rate, its bottom line wouldn't have shown such tremendous growth. While it still would have been an increase, at a higher gross margin rate that enables more additional revenue to flow through to earnings and pad the bottom line.
Super Micro posted some impressive results this past quarter, and it's not hard to see why investors may be bullish on it, given that it benefits significantly from the AI build-out, and with its valuation being relatively modest; its market cap of $23 billion is nowhere near that of other top tech companies. With the stock trading at around $36 and its diluted earnings per share for the past year coming in at $3.26, that would put the stock at an incredibly low price-to-earnings multiple of 11.
But there are valid reasons for the stock trading as low as it does: there's still ample risk here.
NASDAQ: SMCI
Key Data Points
Super Micro's stock may be promising, but it's not a no-brainer buy
There's been a fair bit of volatility in Super Micro's earnings and margins in recent years. Last month, the company already told investors its margins would be better, "primarily due to a favorable customer and product mix." The concern I have is that if its margins can change so dramatically due to product and customer mix, it's conceivable that they might change back and down lower, in future quarters.
The business needs consistency, lots of it. And until that happens, I'd avoid it. The reason the stock trades at a discount is that it contains risk, as investors aren't always sure what to expect from the business and its financials. Plus, there's the risk that tech spending will inevitably slow as pressure builds for companies to be more careful with AI expenditures.
Super Micro's stock is hot right now, but I wouldn't call it a no-brainer buy by any means. Investors should tread carefully given its volatility in recent years.
