Today, Super Micro Computer Inc (SMCI, Financial) experienced a daily loss of 4.59%, contributing to a 3-month decline of 3.6%. With an Earnings Per Share (EPS) of 17.84, a critical question arises: Is the stock significantly overvalued? This article delves into the valuation analysis of Super Micro Computer, urging readers to explore the detailed financial insights that follow.
Company Overview
Super Micro Computer provides cutting-edge server technology services to various high-demand sectors, including cloud computing and big data. The company's innovative, modular architectural approach allows it to offer customized solutions, which has been a significant factor in its success. Operating primarily in the United States, Super Micro Computer also has a substantial presence in Europe, Asia, and other regions. A stark contrast is observed when comparing the current stock price of $834.56 to its GF Value of $165.28, suggesting a significant overvaluation.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Super Micro Computer, the GF Value suggests that the stock is significantly overvalued. This valuation implies that the stock's future returns might be lower compared to its business growth, as it is currently priced well above its intrinsic value of $165.28.
Financial Strength and Risk
Investigating the financial strength of a company is crucial to understanding its risk levels. Super Micro Computer has a cash-to-debt ratio of 1.13, which is slightly below average within the industry. Despite this, its overall financial strength is robust, with a score of 8 out of 10, indicating a strong capacity to withstand financial hardships.
Profitability and Growth Prospects
Super Micro Computer has consistently demonstrated strong profitability with an operating margin of 9.72%, ranking well above many peers. This profitability, combined with a revenue of $11.80 billion over the past twelve months, underscores its efficiency in capital utilization and market position. Moreover, the company's remarkable 3-year average annual revenue growth rate of 26.3% highlights its potential for future expansion and shareholder value creation.
Investment Considerations
When comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC), Super Micro Computer exhibits a strong capacity to generate returns above its capital costs, with an ROIC of 35.07 versus a WACC of 13.98. This indicates effective management and promising investment prospects.
In conclusion, despite its strong financial health, profitability, and growth, Super Micro Computer (SMCI, Financial) appears significantly overvalued based on its current market price relative to its GF Value. Investors should consider this valuation discrepancy before making investment decisions. For more detailed financial analysis and other high-quality investment opportunities, visit Super Micro Computer's 30-Year Financials and GuruFocus High Quality Low Capex Screener.
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.
