Super Micro Computer Inc (SMCI, Financial) has shown a 4.12% daily gain and an 18.5% gain over the last three months. With an impressive Earnings Per Share (EPS) of 11.45, the question arises - is this stock significantly overvalued? This article aims to answer that question and provide an in-depth analysis of SMCI's valuation. Read on to discover more.
Company Introduction
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" embedded markets. Their solutions range from server, storage, blade and workstations to full racks, networking devices, and server management software. With a current stock price of $280.49 per share, Super Micro Computer has a market cap of $14.80 billion and appears to be significantly overvalued, according to the GF Value.
Understanding GF Value
The GF Value is a unique calculation that estimates a stock's fair value based on historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. If the stock's 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 stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Based on this valuation method, Super Micro Computer's stock appears to be significantly overvalued. As a result, 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 poor financial strength carries a higher risk of permanent loss of capital. Hence, it is crucial to review the financial strength of a company before deciding whether to buy its stock. Super Micro Computer has a cash-to-debt ratio of 1.52, which is better than 52.53% of 2372 companies in the Hardware industry. GuruFocus ranks the overall financial strength of Super Micro Computer at 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Super Micro Computer has been profitable 10 years over the past 10 years. With revenues of $7.10 billion and Earnings Per Share (EPS) of $11.45 over the past 12 months, its operating margin of 10.68% is better than 77.73% of 2456 companies in the Hardware industry. Overall, GuruFocus ranks Super Micro Computer's profitability as strong.
Growth is a crucial factor in the valuation of a company. Super Micro Computer's 3-year average annual revenue growth is 26.3%, which ranks better than 90.69% of 2332 companies in the Hardware industry. The 3-year average EBITDA growth rate is 86.9%, which ranks better than 96.74% of 1961 companies in the Hardware industry.
ROIC vs WACC
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) with its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Super Micro Computer's ROIC is 31.4, and its cost of capital is 11.84.
Conclusion
In summary, the stock of Super Micro Computer appears to be significantly overvalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 96.74% of 1961 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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