Will Super Micro Computer (SMCI) Stock Be Delisted?

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Super Micro Computer Inc. (NASDAQ: SMCI) has seen turbulent times recently, with a 6% drop in stock value during Tuesday's trading and a significant 54% decline over the last month. This steep drop comes amid ongoing corporate governance concerns and questions around the company’s financial reporting practices. Hindenburg Research’s report flags red flags in SMCI’s accounting practices, which, combined with the company’s delayed financial statement filing in August, has pushed SMCI into potential trouble with Nasdaq listing rules.

A Deadline Approaching: The Nasdaq Compliance Issue

Nasdaq requires timely financial reporting with the SEC, but SMCI’s delay has put the company at risk of delisting. With a deadline of November 16th, SMCI must either file its overdue report or submit a compliance plan. If not, it could face delisting. Further complicating matters, Ernst & Young resigned as the company’s auditor in October, citing reluctance to be associated with SMCI’s financial statements. This leaves SMCI in need of a new auditor, preferably one of the Big Four, to navigate through this financial maze.

The Performance Contrast: SMCI vs. The Trefis High-Quality Portfolio

Interestingly, SMCI has consistently outperformed the broader market over the last three years, delivering returns of 39% in 2021, 87% in 2022, and a staggering 246% in 2023. But despite its returns, SMCI’s volatility stands in stark contrast to portfolios like the Trefis High-Quality (HQ) Portfolio. HQ stocks are known for steady returns and minimal risk, outshining the S&P 500 each year with a smoother performance.

Looking Back: SMCI’s History with Nasdaq

This isn’t SMCI’s first encounter with Nasdaq delisting risks. In 2018, it was delisted after an SEC investigation into its revenue recognition practices and only regained its Nasdaq listing two years later. The current situation, however, raises questions about the likelihood of history repeating itself. While SMCI’s $15 billion in revenue underscores its size and potential, the reluctance of Ernst & Young to audit its accounts may dissuade other major firms from taking on the task.

Growing Amid AI Demand

Despite the setbacks, SMCI’s growth remains notable. As a leading provider of server systems, management software, and services, it’s benefiting from booming demand for server systems in the AI space, driven by companies like Nvidia. The consensus estimates project an 80% revenue growth for SMCI this fiscal year. With the recent sell-off, SMCI is trading at a forward P/E ratio of just 6.5x, a low multiple for a company with such growth.

Should You Consider SMCI Stock Now?

Given the red flags surrounding SMCI’s financial transparency, potential inaccuracies in earnings reports, and the looming threat of delisting, investors may want to tread cautiously. A delisting could prompt a stock sell-off, leading to further declines. Although SMCI’s growth is enticing, the uncertainty surrounding its financial integrity is a strong deterrent for risk-averse investors.