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Benjamin Graham's Potential Selection – Super Micro Computer (SMCI)

Benjamin Graham's Potential Selection – Super Micro Computer (SMCI)

  • 24.03.2025 17:22
  • marketinference.com
  • Keywords: NoCompanies

Super Micro Computer (SMCI) trades at $41.31 per share, significantly below its Graham number of $116.73, indicating undervaluation. The stock meets several of Benjamin Graham's criteria, including strong sales revenue, current ratio, retained earnings, and EPS growth, suggesting it could be a good investment opportunity.

SMCI Reports

Estimated market influence

Context

Analysis of Super Micro Computer (SMCI) Based on Benjamin Graham's Criteria

Key Metrics and Data Points

  • Current Stock Price: $41.31
  • Graham Number: $116.73 (calculated as √(22.5 * 5-year average EPS * book value per share))
    • Implies the stock is trading at a 64.6% discount to its fair value.

Sales Revenue

  • 5-Year Average Sales Revenue: $6.85 Billion
    • Meets Graham's threshold (originally $100 million, adjusted for inflation).
    • Indicates strong revenue growth and market presence.

Liquidity and Debt Ratios

  • Current Ratio: 2.43 (calculated as Total Current Assets / Total Current Liabilities)
    • Excellent liquidity position, with current assets outweighing liabilities by a factor of 2.43.
  • Long-term Debt to Net Current Assets Ratio: 0.0
    • Indicates no long-term debt relative to net current assets, suggesting financial stability.

Retained Earnings

  • 5-Year Average Retained Earnings: $685.16 Million
    • Demonstrates a strong history of retaining earnings, similar to free cash flow metrics.

Dividend History

  • No Record of Regular Dividends in the past twenty years.
    • May indicate reinvestment in growth or lack of dividend policy.

Earnings Per Share (EPS) Growth

  • 10-Year Average EPS Growth: 531.58%
    • Satisfies Graham's requirement for a minimum increase of at least one-third in EPS over ten years.
    • Exceptional growth compared to historical averages.

Market Implications and Business Insights

Undervaluation Potential

  • Trading at 64.6% below its Graham number, SMCI appears undervalued based on intrinsic value calculations.
  • However, the lack of a dividend history and potential reinvestment in growth may influence investor sentiment.

Competitive Dynamics

  • Strong sales revenue ($6.85B) and exceptional EPS growth (531.58%) suggest effective execution and market leadership.
  • The company's ability to maintain high retained earnings indicates robust profitability and financial health.

Strategic Considerations

  • Liquidity Position: A current ratio of 2.43 highlights strong short-term financial stability, reducing risk during economic downturns.
  • Debt Management: Zero long-term debt relative to net current assets underscores conservative financing practices.

Long-Term Effects

  • Continued EPS growth and revenue expansion could drive sustained shareholder value.
  • The company's ability to maintain its margin of safety while growing will be critical for long-term success.

Conclusion

Super Micro Computer meets most of Benjamin Graham's criteria for an undervalued stock, including strong sales, excellent liquidity, high retained earnings, and exceptional EPS growth. However, the lack of a dividend history and reliance on reinvestment may influence investor decisions. While the stock appears undervalued, further analysis is recommended to assess long-term sustainability and market risks.