Super Micro Computer (SMCI) has been one of the most impressive stocks on the Nasdaq this year, outperforming even some of the most well-known names in the technology sector. This company, which has seen a tremendous rise in its stock price over the past few years, is now offering an interesting opportunity for investors: an upcoming stock split.
Supermicro has seen extraordinary growth in recent years, driven largely by its strong position in the artificial intelligence (AI) market. The company provides high-performance computing solutions like servers and full rack-scale solutions that are essential for AI-driven businesses. As AI continues to expand, demand for Supermicro’s products has surged, propelling the company’s stock to impressive heights. In fact, over the past five years, Supermicro’s stock has increased by more than 2,200%, highlighting its rapid ascent as a key player in the technology sector.
Given this rapid growth, the upcoming stock split has sparked considerable interest among investors. But is now the right time to buy into Supermicro, or should investors wait until after the split?
As stated in previous posts, stock splits are corporate actions that adjust the number of shares in circulation and the price per share, making the stock more affordable for a broader range of investors. In essence, a stock split increases the number of shares while reducing the price per share. For example, if you own one share of Supermicro currently valued at $430, the announced 10-for-1 stock split will give you ten shares at approximately $43 each. Thus, the value of your investment remains the same, but you now hold more shares at a lower price.
High-priced stocks can be out of reach for smaller investors, especially those who do not have access to fractional shares, and by reducing the per-share price, a company like Supermicro can attract more investors, which in turn can increase demand for the stock and potentially drive the price higher. However, it is important to note that while stock splits can make a stock more appealing, they do not change the company’s underlying fundamentals.
Supermicro’s recent performance, particularly its impressive revenue growth, is a testament to its strong position in the market. In the most recent quarter, the company reported higher revenue than it did for the entire 2022 fiscal year, and it expects this momentum to continue with a forecasted revenue growth of up to 230% in the upcoming quarter. Nonetheless, Supermicro has not been without its challenges as despite its strong growth, the stock has experienced a significant decline, dropping more than 60% from its peak earlier this year. This drop can be attributed to a few factors, including a narrowing of gross margins and earnings per share that fell short of analysts’ expectations. Additionally, the company faced some negative news in late August, when Hindenburg Research, a well-known short-selling firm, released a report raising concerns about Supermicro. At the same time, the company announced a delay in filing its 10-K annual report, which further weighed on investor sentiment.
These setbacks have certainly affected the stock’s recent performance, but it is important to view them in the context of the company’s overall trajectory. Supermicro remains a leader in a rapidly growing industry, and its long-term prospects continue to look promising. Thus, while the recent challenges may impact the stock in the short term, they do not necessarily detract from the company’s potential for future growth.
Moreover, when considering whether to buy Supermicro before or after the stock split, it is helpful to look at historical data. Research shows that stocks that undergo splits tend to perform well in the months following the split. According to data from Statista, based on Bank of America’s Research Investment Committee findings, stocks that have split since 1980 have delivered an average total return of 25.4% in the 12 months following the split announcement, compared to 11.9% for the S&P 500 during the same period.
Therefore, given the historical context, investing in Supermicro before the split could be a good strategy for those looking to capitalize on potential post-split gains. However, it is essential to approach this opportunity with a clear understanding of the risks involved as past performance is not a guarantee of future results. Keep in mind that the stock market can be unpredictable, and factors such as economic conditions, market trends, and company-specific developments can all influence a stock’s performance.
Another key consideration for investors is Supermicro’s current valuation. Despite the recent decline in its stock price, the company remains attractively valued, trading at just 12 times forward earnings estimates. This relatively low valuation, combined with Supermicro’s strong growth prospects, makes it an appealing option for long-term investors who are willing to navigate short-term volatility in pursuit of long-term gains.
Ultimately, the decision to invest in Supermicro before or after the stock split depends on your investment goals and risk tolerance. If you are a long-term investor with confidence in the company’s growth potential, buying before the split could allow you to benefit from any post-split price appreciation. Keep in mind that as more investors gain access to the stock at a lower price point, increased demand could help drive the stock price higher, which would potentially reward those who invest before the split. However, if you are concerned about the recent challenges facing the company, you may prefer to wait until after the split to see how the stock performs and whether the company can regain its momentum.
