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Super Micro Computer Stock At Support Zone – Bargain Or Trap?

Posted By: ndeeney
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Super Micro Computer (SMCI) stock deserves a place on your watchlist. Here’s why – it is presently trading within the support zone ($45.52 – $50.32), price points from which it has significantly rebounded in the past. Over the last 10 years, Super Micro Computer stock attracted buying interest at this level 3 times and subsequently achieved an average peak return of 58.9%.

But is the price movement sufficient on its own? It certainly adds value if the fundamentals also align. For SMCI, read Buy or Sell SMCI Stock to determine how compelling this buying opportunity could be.

Investing in a single stock can be risky; however, a more diversified approach has significant advantages. If you are looking for potential upside with reduced volatility compared to holding an individual stock, consider the High Quality Portfolio (HQ) – HQ has exceeded its benchmark, comprised of a blend of the S&P 500, Russell, and the S&P midcap index, achieving over 105% returns since its inception. Effective risk management is crucial – consider what the long-term performance of a portfolio could be if you combined 10% commodities, 10% gold, and 2% crypto with HQ’s performance metrics.

Here are some quick data points for Super Micro Computer that should assist in decision-making:

  • Revenue Growth: 46.6% LTM and 64.7% average over the last 3 years.
  • Cash Generation: Nearly 7.0% free cash flow margin and 5.7% operating margin LTM.
  • Recent Revenue Shocks: The lowest annual revenue growth for SMCI in the past 3 years was 37.1%.
  • Valuation: SMCI stock has a PE multiple of 27.3.
  • Opportunity vs S&P: In comparison to the S&P, you receive a higher valuation, greater revenue growth, and lower margins.

For quick background, Super Micro Computer offers high-performance modular server and storage solutions, which include servers, blades, racks, and networking devices aimed at enterprise data centers, cloud computing, AI, 5G, and edge computing markets.

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*LTM: Last Twelve Months

What Is Stock-Specific Risk If The Market Crashes?

That said, SMCI isn’t insulated from abrupt sell-offs. It experienced a 66% decline during the Global Financial Crisis, nearly 60% in the 2018 correction, and about 46% throughout the Covid pandemic. Even the recent inflation shock erased approximately 34% from its peak. Strong fundamentals are important, but during market downturns, SMCI can still suffer a significant blow.

However, the risk extends beyond major market crashes. Stocks may decline even when markets appear robust – consider events such as earnings announcements, business updates, and changes in outlook. Read SMCI Dip Buyer Analyses to see how the stock has bounced back from significant dips in the past.

The Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, has a history of consistently outperforming its benchmark, which includes all three – the S&P 500, S&P mid-cap, and Russell 2000 indices. What explains this? As a collective, HQ Portfolio stocks have delivered superior returns with diminished risk compared to the benchmark index; providing a smoother investment experience, as demonstrated by HQ Portfolio performance metrics.