What Is Next for Super Micro Stock?
With its shares down by 49% in the last 30 days at the time of writing, Super Micro Computer‘s (NASDAQ: SMCI) situation is going from bad to worse. The former Wall Street darling is reeling after the October resignation of its auditor Ernst & Young, which no longer wants to be associated with the company’s financial statements.
The move comes not long after the short-selling organization Hindenberg Research accused Super Micro’s management of accounting irregularities, self-dealing, and sanctions evasion related to Russia.
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Behind all the noise remains a relatively fast-growing company with excellent exposure to the generative artificial intelligence (AI) industry. Read below to discover what could happen to Super Micro over the next few months and if the company could eventually become a compelling buy.
Perhaps the most disturbing thing about Super Micro’s current predicament is its track record. In 2018, the company was temporarily delisted from the Nasdaq exchange after failing to file its financial reports on time. While the company regained compliance in 2020, it was charged that same year with “widespread accounting violations” related to prematurely recognizing revenue and understating expenses.
The violations included “recognizing revenue on goods sent to warehouses but not yet delivered to customers, shipping goods to customers prior to customer authorization, and shipping misassembled goods to customers.” Super Micro settled for $17.5 million, in addition to a $2.1 million clawback from its CEO Charles Liang, who had to reimburse some stock profits received while the errors were occurring, despite not being charged with misconduct.
Super Micro’s prior violations could give clues into the types of internal control failures the company may still be facing. But the good news is the company’s past violations seem relatively tame, compared to recent high-profile corporate fraud cases like Luckin Coffee, which overstated its 2019 sales by $300 million and faced a fine of $180 million.
That said, the fact that Super Micro continues to find itself in hot water over accounting-related allegations raises concerns about its leadership quality.
Hindenburg’s August report claims three senior Supermicro employees who left in the 2018 scandal were rehired and cites former employees who believe Super Micro’s business culture hasn’t improved since the previous delisting. While managerial skills are difficult to quantify, they’ll eventually show in business performance because of the sheer number of decisions that are made every day to keep a company running. Super Micro also faces the threat of more fines and possible delisting, which could hurt its valuation.
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