Market Capitalization: $25.73 Billion
Enterprise Value: $26.23 Billion
Shares Outstanding: 58.56 Million
Sector: Technology
Industry: Computer Hardware
Analysis as of: September 18, 2024

 

1. Company Overview

Super Micro Computer, Inc. is a leading provider in the computer hardware industry, specializing in high-performance server and storage solutions based on modular and open architecture. Founded in 1993 and headquartered in San Jose, California, the company operates globally, serving markets in the United States, Europe, Asia, and internationally.

The company’s product portfolio includes:

• Server and Storage Systems: Comprehensive solutions ranging from rackmount and blade servers to workstations and full rack configurations.
• Modular Blade Servers: High-density computing solutions designed for efficient data center operations.
• Networking Devices: Equipment that enhances network performance and data throughput.
• Server Subsystems and Accessories: Including server boards, chassis, power supplies, and other critical components.
• Server Management and Security Software: Solutions like Supermicro Server Manager and SuperDoctor 5 for system management and security.

 

Super Micro Computer caters to a diverse clientele, including enterprise data centers, cloud computing providers, artificial intelligence applications, and 5G and edge computing markets. The company utilizes both direct and indirect sales channels, such as distributors, value-added resellers, system integrators, and original equipment manufacturers, to maintain strong customer relationships and expand its market reach.

 

2. Financial Performance

a. Revenue and Growth

• Trailing Twelve Months (TTM) Revenue: $14.94 Billion
• Year-over-Year (YoY) Revenue Growth: +109.77%

 

Super Micro Computer has exhibited substantial revenue growth over recent years:

• FY 2020: $3.34 Billion
• FY 2021: $3.56 Billion (+6.53% YoY)
• FY 2022: $5.20 Billion (+46.06% YoY)
• FY 2023: $7.12 Billion (+37.09% YoY)
• TTM 2024: $14.94 Billion (+109.77% YoY)

 

Analysis: The company has more than doubled its revenue in the TTM period, indicating strong demand for its products and services. This impressive growth reflects successful penetration into key markets and the ability to capitalize on trends such as cloud computing, AI, and data center expansion.

b. Profitability

• Net Income (TTM): $1.21 Billion
• Earnings Per Share (EPS, TTM): $20.09
• Profit Margin: 8.09%
• Return on Equity (ROE): 32.47%
• Return on Assets (ROA): 11.62%
• Return on Invested Capital (ROIC): 15.94%

 

Analysis: Super Micro Computer demonstrates strong profitability metrics. The net income has increased by 88.77% YoY, and the profit margin of 8.09% indicates effective cost management and operational efficiency. High ROE and ROIC figures suggest the company is generating substantial returns on equity and invested capital, signaling efficient use of resources to drive earnings.

c. Cash Flow

• Operating Cash Flow (TTM): -$2.48 Billion
• Free Cash Flow (FCF): -$2.48 Billion
• Free Cash Flow Per Share: -$42.34
• FCF Margin: -16.68%

 

Analysis: The negative operating and free cash flows are a concern. The significant cash outflows may be due to increased investments in working capital components like inventory and accounts receivable to support rapid growth. Persistent negative cash flow could impact the company’s liquidity and financial flexibility.

d. Balance Sheet

• Total Assets: $9.94 Billion
• Total Liabilities: $4.47 Billion
• Total Debt: $2.17 Billion
• Cash & Cash Equivalents: $1.67 Billion
• Net Cash Position: -$504.38 Million
• Current Ratio: 3.77
• Debt-to-Equity Ratio: 0.40
• Altman Z-Score: 7.14

 

Analysis: The company maintains a strong balance sheet with a high current ratio, indicating ample liquidity to cover short-term obligations. The Debt-to-Equity ratio of 0.40 suggests moderate leverage, and the Altman Z-Score of 7.14 signifies a very low probability of bankruptcy. However, the net cash position is negative, meaning total debt exceeds cash reserves, which could pose risks if cash flows do not improve.

 

3. Valuation

• Price-to-Earnings (PE) Ratio (TTM): 21.87
• Forward PE Ratio: 13.05
• Price-to-Sales (PS) Ratio: 1.63
• Forward PS Ratio: 1.00
• Price-to-Book (PB) Ratio: 4.71
• Price-to-Free Cash Flow (P/FCF) Ratio: n/a (due to negative FCF)
• PEG Ratio: 0.29
• Enterprise Value (EV): $26.23 Billion
• EV/EBITDA: 20.11
• EV/EBIT: 20.73

 

Analysis:

• PE Ratios: The trailing PE of 21.87 is moderate, while the forward PE of 13.05 suggests expectations of significant earnings growth, potentially indicating undervaluation.
• PS Ratios: A PS ratio of 1.63 and a forward PS of 1.00 point to reasonable valuations relative to revenue.
• PB Ratio: At 4.71, it reflects a premium over book value, justified by strong profitability.
• PEG Ratio: A PEG of 0.29 (below 1) suggests the stock may be undervalued relative to its growth prospects.
• EV Multiples: Elevated EV/EBITDA and EV/EBIT ratios indicate a higher valuation relative to earnings before interest, taxes, depreciation, and amortization.

Overall, the valuation metrics suggest that Super Micro Computer is reasonably priced, with potential for appreciation if growth continues.

 

4. Market Performance

• Current Stock Price: $439.38
• 52-Week Range: $226.59 – $1,229.00
• 52-Week Price Change: +79.85%
• Beta: 1.24
• Average Volume (20 Days): 8,861,338
• Relative Strength Index (RSI): 36.83

 

Analysis: The stock has performed strongly over the past year, nearly doubling in price. However, the wide 52-week range indicates significant volatility. The Beta of 1.24 suggests that the stock is more volatile than the broader market. An RSI of 36.83 implies that the stock is approaching oversold territory, which could be an entry point for some investors.

 

5. Financial Health and Risks

a. Liquidity

• Current Ratio: 3.77
• Quick Ratio: 1.80

 

Analysis: High liquidity ratios indicate that the company can comfortably meet its short-term obligations, reducing liquidity risk.

b. Leverage

• Debt-to-Equity Ratio: 0.40
• Debt-to-EBITDA Ratio: 1.67

 

Analysis: The company maintains moderate leverage, which is manageable given its profitability. However, the negative free cash flow could affect its ability to service debt if cash flows do not improve.

c. Cash Flow Concerns

• Negative Operating and Free Cash Flow: The significant negative cash flows are due to increases in working capital components, particularly inventory and accounts receivable. This may strain liquidity and necessitates careful management.

d. Operational Risks

• Inventory and Receivables Management: Large increases in inventory and accounts receivable can tie up cash and pose risks if not converted back into cash efficiently.
• Industry Competition: The computer hardware industry is highly competitive and subject to rapid technological changes, requiring continuous innovation and investment.
• Dependence on Key Markets: Economic fluctuations in key markets could impact demand for the company’s products.

e. Market Risks

• Stock Volatility: High Beta and significant price swings increase investment risk.
• Short Interest: With 14.96% of shares sold short, there is substantial short interest, potentially leading to volatility and reflecting market skepticism.

f. Tax Rate

• Effective Tax Rate: 4.94%

 

Analysis: The low effective tax rate may not be sustainable, depending on changes in tax legislation.

 

6. Conclusion and Investment Considerations

Pros:

• Robust Revenue Growth: Exceptional YoY growth demonstrates strong market demand and effective business strategies.
• Strong Profitability: High profit margins and return metrics indicate operational efficiency and effective capital utilization.
• Healthy Liquidity Position: High current and quick ratios reduce short-term financial risk.
• Positive Earnings Outlook: Lower forward PE and favorable PEG ratio suggest potential for future earnings growth.

Cons:

• Negative Cash Flows: Significant negative operating and free cash flows raise concerns about cash management and liquidity.
• Net Debt Position: Negative net cash indicates that debt exceeds cash reserves, which could be problematic if cash flows remain negative.
• Inventory and Receivables Build-up: Increases in these areas can strain working capital and may indicate potential issues with demand forecasting or credit policies.
• High Stock Volatility: Increased risk due to price volatility and significant short interest.
• Industry Risks: Rapid technological changes and intense competition require ongoing investment in R&D and may pressure margins.

Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Investors should perform their own research or consult a financial advisor before making investment decisions.