Super Micro Computer Inc (SMCI, Financial) has been making waves in the stock market with a daily gain of 3.44% and an 8.11% gain over the past three months. The company's Earnings Per Share (EPS) stands at an impressive 11.45. However, the question that arises is whether the stock is significantly overvalued. This article provides an in-depth valuation analysis of Super Micro Computer, offering valuable insights into its financial performance and future prospects.
Company Overview
Super Micro Computer Inc is a leading provider of high-performance server technology services to various sectors, including cloud computing, data center, Big Data, high-performance computing, and the "Internet of Things" embedded markets. With a flexible and innovative approach, the company delivers customized solutions ranging from server, storage, blade, and workstations to full racks, networking devices, and server management software.
Despite its diverse offerings, Super Micro Computer's stock price of $276.69 significantly exceeds its GF Value of $76.91. This discrepancy suggests that the stock might be overvalued. To gain a comprehensive understanding of this valuation, let's delve into the company's financial performance and future prospects.
Understanding the GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Super Micro Computer's stock is estimated to be significantly overvalued based on the GF Value calculation. If the price of a stock is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given Super Micro Computer's current price and market cap of $14.50 billion, the stock appears to be significantly overvalued.
Consequently, the long-term return of Super Micro Computer's stock is likely to be much lower than its future business growth.
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Financial Strength of Super Micro Computer
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Super Micro Computer has a cash-to-debt ratio of 1.52, which ranks better than 52.96% of 2351 companies in the Hardware industry. The overall financial strength of Super Micro Computer is 8 out of 10, indicating strong financial health.
Profitability and Growth of Super Micro Computer
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Super Micro Computer has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $7.10 billion and Earnings Per Share (EPS) of $11.45. Its operating margin is 10.68%, which ranks better than 78.27% of 2421 companies in the Hardware industry. Overall, GuruFocus ranks the profitability of Super Micro Computer at 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Super Micro Computer's 3-year average revenue growth rate is better than 90.79% of 2313 companies in the Hardware industry. Its 3-year average EBITDA growth rate is 86.9%, which ranks better than 96.75% of 1937 companies in the Hardware industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Super Micro Computer's ROIC was 31.4, while its WACC came in at 11.49.
Conclusion
In conclusion, the stock of Super Micro Computer (SMCI, Financial) is estimated to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 96.75% of 1937 companies in the Hardware industry. To learn more about Super Micro Computer stock, you can check out its 30-Year Financials here.
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