Super Micro Computer Inc (SMCI, Financial) has been experiencing a notable uptick in its stock price, with a daily gain of 7.36% and a substantial 3-month gain of 31.59%. With an impressive Earnings Per Share (EPS) of $10.85, investors might wonder if the stock is riding a wave of overvaluation. This article delves into the valuation analysis of Super Micro Computer, aiming to uncover whether its current market price is justified or if the stock is significantly overvalued.
Company Overview
Super Micro Computer Inc provides cutting-edge server technology services to an array of markets, including cloud computing, data centers, and the Internet of Things. The company is recognized for its innovative, modular, and open-standard architecture, which allows for tailored solutions. With over half of its revenue originating in the United States, Super Micro Computer's financial footprint extends globally to Europe, Asia, and other regions. A comparison of the company's stock price to the GF Value of $83.36 reveals a significant disparity, suggesting that the stock may be overvalued. This financial assessment is crucial for investors looking to understand the company's true market value.
Understanding GF Value
The GF Value is a proprietary calculation used to determine the intrinsic value of a stock. It incorporates historical trading multiples, an internal adjustment factor based on past returns and growth, and future business performance projections. When a stock's price significantly exceeds the GF Value Line, it may be considered overvalued, indicating that its future returns could be unsatisfactory. Conversely, a price below the GF Value Line suggests undervaluation and the potential for higher returns. Currently, Super Micro Computer Inc (SMCI, Financial) is trading at $322.19 per share with a market cap of $18 billion, indicating a significant overvaluation according to the GF Value.
Given this assessment, the long-term return of Super Micro Computer's stock may not align with its business growth, potentially resulting in a lower yield for investors.
Financial Strength
Investing in companies with robust financial strength is critical to avoid the risk of capital loss. Super Micro Computer's cash-to-debt ratio of 3.51 outperforms 68.03% of its peers in the Hardware industry. This strong balance sheet has earned the company a financial strength rating of 9 out of 10 from GuruFocus.
Profitability and Growth
A history of profitability often indicates a lower risk investment. Super Micro Computer has maintained profitability for the past decade, with a revenue of $7.40 billion and an Earnings Per Share (EPS) of $10.85 over the last twelve months. Its operating margin of 9.65% ranks well within its industry, further solidifying its profitability score of 9 out of 10.
Growth is also a vital component of valuation, and Super Micro Computer's 3-year average revenue growth rate surpasses 90.67% of companies in the Hardware industry. Its EBITDA growth rate is equally impressive, ranking better than 96.83% of its peers.
ROIC vs. WACC
Evaluating a company's ROIC against its WACC can provide insight into its profitability. Super Micro Computer's ROIC of 29.5 is significantly higher than its WACC of 10.78, indicating efficient cash flow generation relative to its invested capital.
Conclusion
Despite the strong financial condition, profitability, and growth of Super Micro Computer (SMCI, Financial), the stock appears to be significantly overvalued. To gain a deeper understanding of Super Micro Computer and its financials, interested investors can review the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
