With the stock falling 78% from an all-time high reached in March, super microcomputer(NASDAQ:SMCI) could be one of the first dominoes to fall as the artificial intelligence (AI) hype cycle reaches a possible conclusion. But until now, This crisis has little to do with the company’s fundamentals and appears more related to allegedly shady accounting practices and possible irregularities.
come on Explore three factors to consider before considering a position in this struggling tech stock.
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The first recent sign of trouble for Supermicro came in late August when short seller Hindenburg Research – which stood to benefit financially from a drop in the stock price – published a report alleging that the company engaged in accounting manipulation, trading self-employment and evasion. sanctions related to Russia invasion of Ukraine. Last week, some of these accusations gained traction when Supermicros Auditor Ernst & Young resigned, saying, according to Supermicro, that “we resign due to information that has recently come to our attention and which has caused us to no longer be able to rely on the representations of management and the Audit Committee and to be unwilling to be associated with the financial statements prepared by management… “
To make matters worse, Supermicro is also under scrutiny by the Department of Justice, which is said to be reaching out to the company’s former employees and others.
These developments No necessarily affects Supermicros operations. However, they could sink its valuation by creating skepticism about the accuracy of its reporting and the potential fines that could be imposed if management is found guilty of wrongdoing. Unfortunately, that might be the best-case scenario for this increasingly beleaguered company.
supericros the situation could get much worse. public companies are obliged to have auditors and present your financial statements by TRUE deadlines. The company has not met both requirements, putting it at risk of being delisted from the Nasdaq.
After failing to file its annual 10-K report in August, management has until mid-November to submit a compliance plan, which (if approved) could push the deadline back to February 2025. However, Supermicro is still at a dead end because No have an auditor, and current issues could make startups hesitant to take on the role.
Wedbush analyst Matt Bryson highlighted the difficult situation in an interview with Bloomberg: “YO think that they will probably end up being delisted just because of the deadlines involved. How do they get their 10-K done in just a few months when No They have an auditor, and their last auditor resigned?”
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Yes Supermicro is removed from the listthe shares would probably go to on the countermarkets, which may be less liquid than traditional exchanges. However, this No They have to be permanent because companies can regain compliance and become publicly traded again. For example, the stock was delisted after missing Nasdaq reporting deadlines in 2019 before rejoining the exchange in 2020.
Most of Supermicros Greater near-term challenges could impact its valuation, not its fundamentals, and earlier this week it released some encouraging, albeit preliminary, news. On Nov. 5, it released an update from its “independent special committee” suggesting fiscal first-quarter net sales (the quarter ending Sept. 30) of Between 5,900 and 6,000 million dollars.
These figures are much lower than management previous guidance of $6 billion to $7 billion, but represents 180% growth compared to the $2.12 billion reported in the prior-year period. with a future price-earnings ratio of 7.65, Super Micro Computer stock is starting to look like a great deal, but Until there is more clarity, this speculative play may not be worth considering.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Is Super Micro Computer Stock a Buy? 3 things to keep in mind. was originally published by The Motley Fool
