Super Micro Computer (NASDAQ:SMCI) shares have had a tough couple of weeks, losing almost 40% since the end of February. In a sense, this could be chalked up to a “sell the news” moment, as the stock price began its downward descent a few days prior to SMCI’s late February deadline to submit its delayed financials and remain listed on the Nasdaq.
SMCI has been on a wild ride over the past year – shooting up over 300% in the first few months of 2024 before falling back down to earth. The second half of last year was a particularly painful period, as concerns over financial improprieties led to big-time share price decreases, a public parting with its accounting firm, and even reports of a U.S. Department of Justice investigation into the supposed accounting violations.
Still, the AI server company can point to its ongoing partnership with the industry-leading Nvidia along with the regulatory bullet it dodged at the end of last month as reasons for optimism.
One investor known by the pseudonym Envision Research spots another clear indication of the company’s promising horizon: its declining inventory levels.
“The latest inventory provides a clear indication of the strong demand and market positioning of its product lineup in my assessment,” explains the 5-star investor.
Envision details that for cyclical companies like SMCI, large inventory stores can reflect overproduction and softening demand. The investor adds that SMCI’s inventory grew from $1.5 billion in the middle of 2022 to $4.9 billion in Q3 2024, representing a worrisome trend.
In contrast, Envision notes that the company has dramatically decreased its inventory to $3.5 billion during the past quarter, while also lowering its Days Inventory Outstanding below its historical average.
“My experiences have taught me that inventory is a more quantitative and reliable metric but often overlooked,” emphasizes the investor.
To Envision, the company’s valuation looks even more attractive following the losses over the past month. The investor cites SMCI’s non-GAAP Price-to-Earnings ratio of 16x, which is significantly lower than both the sector median and the company’s own 5-year average.
“I think its latest inventory changes, together with the clarity provided by its NASDAQ filing, have further skewed its reward/risk curve” for the better, concludes Envision Research, who is rating SMCI a Strong Buy. (To watch Envision Research’s track record, click here)
Wall Street, on the other hand, is split on whether SMCI is truly on the rebound. With 4 Buy, 4 Hold, and 2 Sell ratings, SMCI holds a consensus Hold (i.e. Neutral) rating. However, the recent dip could make SMCI’s 12-month average price target of $49.00 more enticing for bulls, as it implies gains of over 30% in the year ahead. (See SMCI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.