Supermicro shares have soared as the company looks to avoid delisting. Is now a good time to buy battered stocks?

It’s been a roller coaster ride for Super Micro Computer (SMKI 11.62%) stocks this year, with a lot of big moves in both directions. After a hot start to the year, the company’s shares began to fall following a short report from Hindenburg Research that accused the company of accounting manipulation. This was soon followed by a delay in filing the 10-K annual report.

Wall Street Journal It was later reported that the Department of Justice (DOJ) was investigating Supermicro over potential accounting problems, adding fuel to the fire, although this report was never confirmed by either the company or the DOJ.

The stock later rose after the company announced it was shipping more than 100,000 graphics processing units (GPUs) in the quarter.

However, that growth faded following news that its auditor, Ernst and Young, was resigning and that it would need to find a new auditor to file its annual report. This delay put the company at risk of delisting its shares. Nasdaq Stock Market.

Supermicro shares fell further after the company announced preliminary fourth-quarter results that were significantly below expectations. However, the stock returned to growth mode after the company announced it had found a new auditor.

The stock is currently down slightly for the year, down about 7% as of this writing, although it tends to make some pretty big moves in a short period of time. Against this backdrop, let’s take a closer look at the company’s latest news and see if investors should consider buying the stock at current levels.

New auditor arrives

Supermicro shares soared more than 30% after the company appointed BDO as its new auditor. Ernst and Young previously resigned in a rather harsh statement, saying that it had “no desire to participate in the financial statements prepared by management” and that it had concerns about Supermicro’s governance, transparency and internal controls.

The firm has only been Supermicro’s auditor since March 2023, after taking over from Deloitte & Touche.

So the acquisition of BDO, one of the world’s five largest accounting firms, is a big potential win for the company. Supermicro said in a statement: “This is an important next step in bringing our financial reporting up to date, and we are pursuing it with diligence and urgency.”

In addition to announcing a new auditor, Supermicro also said it submitted a compliance plan to Nasdaq in hopes of receiving an extension to its filing deadline and remaining listed on the exchange. If the company were delisted, its shares would still be traded, but they would now be on the over-the-counter (OTC) market. This may lead to its removal due to S&P 500 Index an index that was only joined earlier this year.

Is now a good time to buy Supermicro stock?

Supermicro is a company that has benefited greatly from artificial intelligence (AI) infrastructure as it helps design and build servers and rack-mount systems for customers. It has found a good niche by being one of the first companies to use direct liquid cooling (DLC) solutions to help keep these systems, which can get hot and overheated, cool.

However, it is also a more commodity-based business with low gross margins. The company has had margin issues and its latest revenue numbers also missed estimates significantly. However, its revenue still rose more than 18% year-over-year last quarter, despite missing previous guidance.

Meanwhile, from a valuation perspective, the company’s forward price-to-earnings (P/E) ratio is around 9.5 times analyst estimates for the current fiscal year. If these numbers hold up, it would be a very inexpensive valuation for a company growing as fast as Supermicro.

SMCI PE Ratio (Forward) data from YCharts.

The caveat is that Supermicro is currently scrutinizing its numbers. The Securities and Exchange Commission (SEC) has fined the company in the past for its accounting, while the combination of a brief report, a potential DOJ investigation and the resignation of its auditor is not looking good.

However, this is a real business that is in high demand, so if the company were to simply “smooth out” the numbers to match projections, the future implications might not be so bad.

I think investors could consider taking a small position in Supermicro based on its valuation and role in building AI infrastructure, but that would be a speculative position for risk-tolerant investors only.