Super Micro Computer Inc. (SMCI, Financial) experienced a daily loss of 4.73% and a 3-month gain of 6.57%, with an Earnings Per Share (EPS) (EPS) of 11.45. Given these figures, the question arises: is the stock significantly overvalued? This article aims to provide a comprehensive analysis to answer this question. Read on to understand the valuation of Super Micro Computer (SMCI).
Company Overview
Super Micro Computer Inc provides high-performance server technology services to various markets, including cloud computing, data center, Big Data, high-performance computing, and the "Internet of Things." The company's solutions range from server, storage, blade, and workstations to full racks, networking devices, and server management software. Super Micro Computer operates in one segment that develops and provides high-performance server solutions based on an innovative, modular, and open-standard architecture. The firm generates more than half of its revenue in the United States, with the rest coming from Europe, Asia, and other regions.
The company's stock price is currently at $257.96, significantly higher than the GF Value of $77.19, indicating an overvaluation. The following sections delve deeper into the company's valuation and financial health.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded. This value is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Super Micro Computer (SMCI, Financial) appears to be significantly overvalued based on the GF Value. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 257.96 per share, Super Micro Computer stock appears to be significantly overvalued.
Because Super Micro Computer is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Super Micro Computer has a cash-to-debt ratio of 1.52, which ranks better than 52.57% of 2372 companies in the Hardware industry. Based on this, GuruFocus ranks Super Micro Computer's financial strength as 8 out of 10, suggesting a strong balance sheet.
This is the debt and cash of Super Micro Computer over the past years: 
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. 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 78.02% of 2443 companies in the Hardware industry. Overall, GuruFocus ranks the profitability of Super Micro Computer at 9 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Super Micro Computer's 3-year average revenue growth rate is better than 90.84% of 2337 companies in the Hardware industry. Super Micro Computer's 3-year average EBITDA growth rate is 86.9%, which ranks better than 96.79% of 1963 companies in the Hardware industry.
ROIC vs WACC
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 11.54.
The historical ROIC vs WACC comparison of Super Micro Computer is shown below: 
Conclusion
In conclusion, the stock of Super Micro Computer (SMCI, Financial) appears to be significantly overvalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 96.79% of 1963 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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