Is Now the Time to Put Super Micro Computer (NASDAQ:SMCI) on Your Watchlist?

The thrill of investing in a company that can turn its fortunes around is a big draw for some speculators, so even companies with no revenue, no profits, and a history of failing can find investors. But the reality is that when a company loses money every year for long enough, investors will usually take their share of those losses. A loss-making company has yet to prove itself with a profit, and eventually the influx of outside capital can dry up.

Despite living in the era of ‘blue sky’ technology stock investments, many investors still employ a more traditional strategy; buying shares in profitable companies such as Supermicrocomputer (NASDAQ:SMCI). While this doesn’t necessarily indicate that the company is undervalued, the company’s profitability is enough to warrant some valuation – especially if it is growing.

Check out our latest analysis for Super Micro Computer

How fast is Super Micro Computer’s earnings per share growing?

Super Micro Computer’s earnings per share have grown quite a bit over the past three years; so much so that it’s a bit unfair to use these numbers to try to derive long-term estimates. So it makes sense to focus on more recent growth figures instead. Interestingly, Super Micro Computer’s earnings per share have shot up from US$12.09 to US$20.63 over the past year. It’s rare to see such 71% year-over-year growth, and this could be a sign that the company has reached a real tipping point.

Topline growth is a good indicator that growth is sustainable, and combined with a high earnings before interest and tax (EBIT) margin, it is a great way for a company to maintain a competitive edge in the market. In terms of revenue, Super Micro Computer has performed well over the past year, with revenue growth of 110% to US$15 billion, but EBIT margin figures have been less stellar, showing a decline over the past 12 months. So if EBIT margins can stabilise, this topline growth should pay off for shareholders.

In the chart below you can see how the company has grown its profit and revenue over time. To see the actual numbers, click on the chart.

You don’t drive with your eyes on the rear view mirror, so this might interest you more free report with analyst forecasts for Super Micro Computer future gain.

Are Super Micro Computer insiders aligned with all shareholders?

Given that Super Micro Computer has a market cap of US$36 billion, we wouldn’t expect insiders to own a large percentage of the shares. However, we do take comfort in the fact that they are investors in the company. In particular, they have an enviable stake in the company, worth US$9.2 billion. This represents 26% of the company’s shares. Enough to sway management’s decision-making in a direction that delivers the most benefit to shareholders. So there’s an opportunity here to invest in a company where management has tangible incentives to deliver.

It’s good to see insiders investing in the company, but are compensation levels reasonable? Our quick analysis of CEO compensation seems to indicate that they are. Our analysis found that the median total compensation for the CEOs of companies like Super Micro Computer, with market capitalizations of over US$8.0 billion, is around US$13 million.

The CEO of Super Micro Computer received just US$1.0 in total compensation for the year ending June 2023. One could view this compensation as somewhat symbolic, suggesting that the CEO doesn’t need much compensation to stay motivated. CEO pay levels aren’t the most important metric for investors, but when pay is modest, it does support better alignment between the CEO and ordinary shareholders. It can also be a sign of a culture of integrity more broadly.

Is Super Micro Computer worth keeping an eye on?

Super Micro Computer’s earnings per share have been soaring, with sky-high growth rates. An added bonus for those interested is that management owns a lot of shares and the CEO compensation is reasonable, which illustrates good cash management. The strong EPS improvement suggests the company is doing well. Super Micro Computer certainly ticks a few boxes, so we think it’s probably worth considering further. But before you get too excited, we’ve discovered 3 Warning Signs for Super Micro Computer (1 is a bit of a concern!) that you should be aware of.

While Super Micro Computer certainly looks good, it could attract more investors if insiders bought shares. If you like to see companies with more skin in the game, check out this hand-picked selection of companies that not only boast strong growth, but also have strong insider backing.

Please note that the insider transactions discussed in this article are reportable transactions in the relevant jurisdiction.

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This article from Simply Wall St is general in nature. We comment solely on historical data and analyst forecasts, using an objective methodology. Our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or financial situation. We aim to provide you with a long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in the shares mentioned.