Information Technology Stocks

Super Micro Computer Inc Valuation – Initial Coverage $SMCI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Super Micro Computer Inc (SMCI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Super Micro Computer, Inc. is engaged in developing and providing end-to-end green computing solutions to the cloud computing, data center, enterprise information technology (IT), big data, high performance computing (HPC) and Internet of Things (IoT)/embedded markets. The Company’s solutions range from server, storage, blade and workstations to full racks, networking devices, server management software and technology support and services. The Company sells its server systems and server subsystems and accessories through a combination of distributors, including value added resellers and system integrators, and other equipment manufacturers (OEMs). As of June 30, 2016, the Company offered over 4,950 stock keeping units (SKUs), including SKUs for server and storage systems, serverboards, chassis, power supplies and other system accessories. The Company develops and manufactures server solutions based upon a modular and open architecture.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SMCI – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,205,897,364 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.18 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 179.53% Pass
6. Moderate PEmg Ratio PEmg < 20 18.85 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.83 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.18 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.06 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.42
MG Growth Estimate 15.00%
MG Value $54.54
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $20.54
MG Value based on 0% Growth $12.04
Market Implied Growth Rate 5.17%
Current Price $26.70
% of Intrinsic Value 48.95%

Super Micro Computer, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, and poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.64 in 2013 to an estimated $1.42 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Super Micro Computer, Inc. revealed the company was trading above its Graham Number of $21.83. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.85, which was below the industry average of 38.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $10.02.

Super Micro Computer, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $10.02
Graham Number $21.83
PEmg 18.85
Current Ratio 2.18
PB Ratio 1.83
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $1,113,808,000
Total Current Liabilities $509,762,000
Long-Term Debt $34,732,000
Total Assets $1,349,856,000
Intangible Assets $0
Total Liabilities $597,656,000
Shares Outstanding (Diluted Average) 51,521,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.36
Jun2016 $1.39
Jun2015 $2.03
Jun2014 $1.16
Jun2013 $0.48
Jun2012 $0.67
Jun2011 $0.93
Jun2010 $0.65
Jun2009 $0.41
Jun2008 $0.65
Jun2007 $0.57
Jun2006 $0.53
Jun2005 $0.24
Jun2004 $0.17
Jun2003 $0.14
Jun2002 $0.09

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.42
Jun2016 $1.35
Jun2015 $1.23
Jun2014 $0.82
Jun2013 $0.64
Jun2012 $0.70
Jun2011 $0.69
Jun2010 $0.57
Jun2009 $0.51
Jun2008 $0.52
Jun2007 $0.41
Jun2006 $0.30
Jun2005 $0.17
Jun2004 $0.11
Jun2003 $0.07
Jun2002 $0.03

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Akamai Technologies Inc Valuation – January 2017 $AKAM
Motorola Solutions Inc Valuation – December 2016 $MSI
Science Applications International Corp Valuation – Initial Coverage $SAIC
Acxiom Corporation Valuation – November 2016 $ACXM
ACI Worldwide Inc Valuation – November 2016 $ACIW
Equinix Inc Valuation – August 2016 $EQIX
Qualcomm Inc Valuation – August 2016 $QCOM
Verisign Inc Valuation – August 2016 $VRSN
Akamai Technologies Inc Valuation – August 2016 $AKAM
Motorola Solutions Inc Valuation – August 2016 $MSI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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