Super Micro Computer (SMCI) Down 36% From Its High, Is It a Good Buy?

Super Micro Computer (SMCI), which makes a wide array of server-related products, was a darling stock for part of 2023 and 2024 when it had rallies of more than 260% and 300%, respectively, over a couple of months within each of those years. The stock is up a total of 843% since the start of 2023.

After peaking in March at $1229 per share, the stock is down 36% and has been moving sideways since May. Here are the pros and cons of the stock right now.

Cory Mitchell, an analyst with Trading.biz commented.

“SMCI is still a great growth company. The stock price has retraced from its high, but if the company continues to generate strong earnings growth the stock price could reach and exceed those prior highs.

EPS has grown at an average of 66.7% per year over the last five years and SMCI is expected to grow earnings by 62.4% per year over the next five years. That helps explain the strong stock performance in recent years, and how it could continue if the company delivers on those growth estimates. 

The forward P/E is very reasonable at 22.9; that’s close to the forward P/E for the S&P 500. And most stocks in the S&P 500 aren’t growing at the rate of SMCI. The current stock price will look cheap in a few years if the company can deliver 60% growth (average) per year.”

From a valuation perspective, SMCI is looking like a much better bet than investing in an S&P 500 ETF. The forward P/E for the S&P 500 is 22.13. S&P 500 stocks are expected to increase earnings by a median percentage of 9.3% per year over the next five years.

SMCI has a forward P/E of 22.9 and is expected to grow earnings by more than 60% per year. Way more growth for a similar valuation to the S&P 500.

PEG forward is another measure of value. It is similar to P/E but uses the expected earnings growth rate over the next five years. A reading of 1 is considered fairly valued, with a reading under 1 being undervalued. SMCI has a PEG forward of 0.5. That’s excellent.

Technically the stock has been moving sideways since May. It is currently near the lower end of the range. The advantage of buying here is an excellent entry if the price goes higher.

The downside of entering here is that it is unknown when (and if) if the stock price will go higher. An alternative is to buy if the price starts moving up again. Slightly worse entry price, but at least the price is starting to move in the right direction.

If the company can deliver on what it is expected to do over the next few years, the stock is a great buy right now. There are no certainties though. The company may not deliver, or a broader stock market or economic downturn could drag SMCI with it. Always manage risk by considering exit points and position size before entering.