Shares of Super Micro Computer (SMCI -8.74%) soared yesterday after the company announced that it filed a plan to remain listed on the Nasdaq Stock Exchange and, maybe more importantly, hired a new independent auditor.
The stock spiked about 31% on that news, after it had been in free fall in recent weeks. But Supermicro shares were giving back some of yesterday’s gains in the current session. As of 3:17 p.m. ET, shares were down by 10.1% today.
Investors need to balance risk and reward
Appointing a new auditor was critical, and maintaining its listing on the Nasdaq exchange is also important for the company and the stock. But there are still going to be ramifications from Supermicro’s accounting questions.
In a business update presented on Nov. 5, the company reduced revenue guidance for its fiscal 2025 first quarter ended Sept. 30. It also provided lower sales guidance for its fiscal second quarter than investors had hoped. But the company also shared that an independent committee investigating concerns raised by its previous auditor didn’t result in findings of fraud or misconduct.
That’s positive news, but it doesn’t eliminate the uncertainty in its business. And it wouldn’t be a stretch to think that Supermicro’s midpoint quarterly revenue guidance of $5.95 billion and $5.8 billion, respectively, could again be reduced in the future. After all, customers may not want to risk placing some orders amid the dynamic situation.
That said, the stock is now trading with a market cap of about $15 billion. Even if the stated guidance is reduced by one-third and extrapolated for a full 12-month period, annual revenue would total more than $15 billion. That would result in a price-to-sales ratio of about 1, and that could be an interesting place to start an investment.
But investors willing to take the risk should enter with eyes wide open. It’s possible that Supermicro’s rejuvenation could be short-lived, and the business could still fall apart. Business results still must be confirmed, and some investors were happy to book yesterday’s pop.
Howard Smith has positions in Super Micro Computer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
