While dot-com darlings spent lavishly during the go-go 1990s, Super Micro Computer
Super Micro develops customized "scale-out" servers to quickly increase a company's computing power. For example, if an online gaming company adds a new title to its development slate, Super Micro can deliver its programmers a server focused on processing cutting-edge graphics.
Customers also want the newest technologies, and Super Micro has a history of being quick to market in this regard. Its timely tech offerings may spring from its close relationships with companies like Intel and Advanced Micro Devices
Super Micro faces intense competition from players like Dell
Rackable is right to be concerned about Super Micro. While both companies are growing revenues by more than 50% per year, Super Micro has stronger net income margins. In 2006, Rackable's margin was 3.2%, while Super Micro's was 5.5%. Why? I think Super Micro had to be efficient from its early years, since it never obtained venture capital.
The company's growth trajectory shows no signs of leveling out. Super Micro expects to launch its line of blade servers during the first half of 2007.
IPOs typically sell at relatively high valuations, but that's not the case here. Super Micro trades at roughly 13 times earnings, compared to Rackable's 42 times earnings. It's also a discount to the S&P 600 small-stock index multiple of 22 times earnings. So long as Super Micro can maintain its growth and profitability, its stock should be one to watch for small-cap-focused Fools.
Faster than a speeding bullet, it's further Foolishess:
Intel and Dell are Inside Value picks, while Dell doubles up as a Stock Advisor selection, too. Try any of our Foolish newsletters free for 30 days.