Is Super Micro Computer a millionaire producer stock?

On By Littum

When I think of stocks with millionaire potential, I typically picture fast-growing companies with small valuations – two characteristics Super micro computer (NASDAQ: SMCI) has in spades. However, the data center hardware manufacturer is cheap for a reason. Let’s examine whether the company can overcome its near-term accounting challenges to unlock explosive value for shareholders.

Supermicro’s problem started on August 7, when short seller organization Hindenburg Research released a scathing report accusing it of accounting manipulation, self-dealing and sanctions evasion in connection with the Russian invasion of Ukraine. Later, the company delayed publishing its annual report, putting it at risk of being delisted from the Nasdaq stock exchange.

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The situation worsened when Supermicro’s auditor at the time, Ernst & Young, resigned on October 30, citing months of disagreements with management and an unwillingness to be associated with its financial statements. All in all, these developments wreaked havoc on the stock, sending shares down 76% year-to-date from their all-time high of $119 reached in March. However, the company already appears to be overcoming some of these challenges.

On Nov. 19, Supermicro appointed a new auditor, BDO, who will help it file its annual report and execute its plan to regain Nasdaq compliance and avoid delisting.

There is still some uncertainty because Nasdaq still needs to approve Supermicro’s plan to regain compliance, which is not guaranteed. However, if successful, this development could boost the company’s valuation. A delisting would damage the company’s liquidity and make shares less attractive to ordinary asset managers, who often avoid investing in shares listed on less regulated, over the counter exchanges.

The sooner Supermicro’s financial situation is cleaned up, the sooner the market will start paying attention to its stellar fundamentals. And the numbers look encouraging. Earlier this month, management released an unaudited update from its independent special committee detailing preliminary financial data corresponding to its fiscal first quarter.

Net sales are expected to be between 5.9 and 6 billion dollars. While this is significantly below previous guidance of $6 billion to $7 billion, it represents a 180% year-over-year growth rate compared to the prior-year period. In addition, Supermicro has plenty of catalysts for continued growth.