Photo by on Super Micro Computer’s () stock price is UP 250% as of today but despite this tremendous jump ALL its valuation metrics suggest that buying SMCI stock is a no-brainer. SMCI Valuation Metrics Are Excellent
Its price-to-earnings (P/E) ratio: 16.5x (27.0% BELOW the sector median of 22.6x)
Its current price-to- sales ratio (PSR): 2.1x (21.8% BELOW the sector median of 2.7x)
Its forward price-to-sales ratio (PSR): 45.1% BELOW the sector median of 2.6x)
Its current price-to-expected growth (PEG) ratio: 0.83x (12.2% BELOW the sector median of 0.95x)
Its forward price-to expected growth (PEG) ratio: 0.66x (64.7% BELOW the sector median of 1.87x)
Its current enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA) ratio: 20.2x ABOVE the sector median of 15.3x)
Its forward enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA) ratio: 12.3x BELOW the sector median of 14.6x)
(Please note that the above metrics – see definitions at end of article – change daily with the change in SMCI’s stock price.) SMCI Q1 Financial Report Was ExcellentIn addition to the above impressive valuation metrics the company’s revenue in Q1/2023 (see ) was up 14% year over year to $2.1 billion and the company is anticipating faster year-over-year growth of 55% in the current quarter with its full-year revenue ending up somewhere between $10 billion and $11 billion, which would be a 47% increase over last year. Reasons For SMCI’s Major Stock AppreciationThe positive growth to date – and projected major increase in SMCI’s revenue going forward – is due to the major AI demand for its modular server solutions. The company’s focus is on building modular, low-cost, scalable, customizable, and energy-efficient servers and storage solutions including racks, on which IT equipment is mounted and organized to ensure security and improve airflow to keep the system cool. That focus, which helps SMCI design products faster and introduce them faster in the market, has proven to be a key differentiator in a market full of mass-produced servers. ConclusionFoxconn estimates that sales of AI servers could grow fivefold by 2027 (with the AI infrastructure market estimated to grow to $309.4 billion by 2031), suggesting that Super Micro is sitting on a lucrative secular growth opportunity and supports the company’s belief that it could achieve annual revenue of $20 billion in a couple of years, double its fiscal 2024 estimate.Media Coverage
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Valuation Metric DefinitionsTo evaluate the above companies look at the key valuation ratios referred to above and defined below:
The price-to-earnings (P/E) ratio compares a company’s share price to its earnings per share, providing a measure of relative value. A high P/E ratio could mean that a company’s stock is overvalued, or that investors are expecting high growth rates in the future.
The price-to-sales ratio (PSR) indicates the price paid for a share relative to the revenue that share generates, helping assess if a stock is valued appropriately. The mean forward PSR is considered excellent when the value falls below two (2).
The price earnings-to-growth ratio (PEG ratio)is considered to be an indicator of a stock’s true value. A PEG lower than 1.0 is best, suggesting that a company is relatively undervalued.
The Enterprise Value-to-Earnings Before Interest, Taxes, Depreciation, and Amortization ratio (EV/EBITDA) ratio considers a company’s total value, including debt and equity, relative to its earnings before interest, taxes, depreciation, and amortization, giving investors insight into profitability across companies. A high ratio means the company is overvalued, while a low ratio indicates it’s undervalued.
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