When I think about stocks with millionaire-maker potential, I typically envision fast-growing companies with small valuations — two characteristics Super Micro Computer (NASDAQ: SMCI) has in spades. However, the data center hardware maker is cheap for a reason. Let’s explore whether or not the company can overcome its near-term accounting challenges to unlock explosive shareholder value.
Supermicro’s problem started on Aug. 7, when short-seller organization Hindenburg Research released a scathing report accusing it of accounting manipulation, self-dealing, and sanctions evasions related to the Russian invasion of Ukraine. Later, the company delayed releasing its annual report, putting it in danger of delisting from the Nasdaq Stock Market.
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The situation worsened when Supermicro’s then-auditor, Ernst & Young, resigned on Oct. 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 looks set to overcome some of these challenges.
On Nov. 19, Supermicro named a new auditor, BDO, which will help it file its annual report and execute its plan to regain compliance with the Nasdaq and avoid delisting.
There is still some uncertainty because the Nasdaq still has to approve Supermicro’s plan to regain compliance, which isn’t guaranteed. However, if successful, this development could boost the company’s valuation. A delisting would hurt the company’s liquidity and make shares less attractive to mainstream asset managers, who often avoid investing in stocks listed on less regulated, over-the-counter exchanges.
The sooner Supermicro’s accounting situation is cleared up, the sooner the market will begin 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 billion and $6 billion. While this is significantly below prior guidance of $6 billion to $7 billion, it represents a 180% year-over-year growth rate compared to the prior-year period. Furthermore, Supermicro has plenty of catalysts for continued growth.
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