Super Micro Computer: The Time Correction Is Not Yet Over (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• As expected in my last article on the stock, SMCI has had a time correction. I believe this is not yet over:
• Growth continues to be very strong and it is heartening to see leading revenue indicators grow at 40% YoY, with record high backlog levels.
• Increased competitive intensity and management's commentary on margin guidance and pricing strategy make me believe there is a risk to undershooting long-term gross margin targets.
• Together with lower expected margins, increased working capital intensity via higher inventories and lower payable days are a recipe for mild ROIC erosion.
• SMCI trades at a deserved premium to its peers due to a better growth profile, but I believe a 40% premium is too much for comfort. Technically, the time correction continues as there are no signs of strong buyers to resume an uptrend.

Read the full article here.