(Bloomberg) — The roller coaster ride for Super Micro Computer Inc. stock is likely to continue for some time as investors weigh the company’s next steps to avoid being delisted from Nasdaq Inc.
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Shares of the server maker rose 12% on Friday, extending their weekly gains to 78% and posting the best week on record after hiring BDO USA as its independent auditor and presenting a plan to comply with Nasdaq listing requirements. The stock’s sharp rally is the latest twist in a saga that saw shares hit an all-time high in March before those gains evaporated amid accusations of accounting and governance problems and filing delays.
The company said this week that it believes it can file its delayed 10-K and 10-Q reports in the period available under Nasdaq rules. If Super Micro’s proposal is accepted, it would likely have until mid-February to submit it. That creates months of greater uncertainty, leaving investors to decide whether to hold on to stocks in hopes of a recovery or bail out.
“I really think it’s just a coin toss right now,” said Larry Tentarelli, chief technical strategist at Blue Chip Daily. Tentarelli said he previously held shares of Super Micro, but sold them in late July when the stock was in the $80 range.
Representatives for Super Micro and Nasdaq declined to comment.
The San Jose, California-based firm delayed filing its annual 10-K report, following a damaging report earlier this year from short seller Hindenburg Research, and has said it would delay quarterly reports.
The company’s previous auditor, Ernst & Young LLP, resigned in October, citing concerns about the company’s transparency and governance. Super Micro also faces an investigation by the US Department of Justice.
Bloomberg Intelligence analyst Woo Jin Ho reserves judgment on whether Super Micro can recover.
“The filing extension gives the company until the end of February to file documents, but it seems likely that the over-delisting will persist until it complies,” he wrote. “Given the challenges Ernst and Young noted in working with Super Micro’s board, it is unclear whether BDO will face similar issues.”
Nasdaq must now review and approve the company’s plan, a process that is expected to last about two weeks. If the exchange does not accept the proposal, Super Micro can appeal the decision. In the meantime, the shares will continue to trade.
Others on Wall Street are more optimistic, viewing Super Micro as too important to be delisted and kicked out of the S&P 500 index. The company earned inclusion in the benchmark in March, further boosting its staggering returns to that moment.
Now that the possibility of a delisting has been reduced, “we expect the stock to hit our price target in the near term,” said Lynx Equity Strategies analyst KC Rajkumar, who has a target of $45, which implies an increase of more than 50%. since closing on Thursday.
Still, several other analysts are unwilling to make a decision, and at least seven companies have suspended coverage of the stock since late October, when previous auditor Ernst & Young LLP resigned, according to data compiled by Bloomberg.
As they weigh Super Micro’s prospects, investors also have their eyes on its competitors. The company’s problems could be a potential boon for rival server makers, including Dell Technologies Inc., Lenovo Group Ltd. Wiwynn Corp., Hon Hai Precision Industry Co. and Pegatron Corp., according to Bloomberg Intelligence. Dell shares rose in November, while Super Micro plunged.
On the other hand, now that the possibility of Super Micro delisting has been reduced, hardware peers like Dell may “be in danger of a stock decline,” Lynx analyst Rajkumar wrote.
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Earnings due on Friday
–With assistance from Sunil Jagtiani and David Watkins.
