SMCI stock price has tanked: is this a classic value trap?

The Super Micro Computer stock price has remained on edge this month, a trend that continued last week after the company suffered a major reputation risk.

SMCI stock was trading at $24 on Thursday, near its lowest level since November last year.

It has slumped by 65% from its highest point in July last year.

Super Micro Computer business suffers a major reputational risk 

The SMCI stock price plunged after the company’s employees, including its founder and other employees, were charged with smuggling NVIDIA chips to China through a Southeast Asian intermediary.

In addition to the founder, the lawsuit also involves Charles Liang, the CEO, and David Weigand. The lawsuit said:

“The conduct by these individuals alleged in the indictment is a contravention of the Company’s policies and compliance controls, including efforts to circumvent applicable export control laws and regulations.”

As a result, the company’s shareholders have sued it for securities fraud, alleging that the company failed to disclose its China sales. 

The new lawsuit and allegations mean that the company has suffered a major reputation risk, which may affect its revenue and profitability.

READ MORE: One simple reason to 'avoid' buying the dip in SMCI stock today

SMCI stock is cheap despite the revenue growth 

The most recent results showed that the company's business continued doing well in the second quarter.

Its revenue jumped by 153% QoQ and 123% YoY, making it one of the fastest-growing companies in the US.

The revenue growth coincided with the ongoing AI boom.

Wall Street analysts believe that the company has more room to grow in the coming months.

The average estimate among analysts is that its third-quarter revenue will be $12.4 billion, up by 170% YoY.

The earnings per share (EPS) is expected to come in at 62 cents, double the 31 cents it made in the same period a year earlier.

Additionally, analysts believe that its annual revenue will be $41.4 billion, up by 88% YoY.

Its revenue is expected to come in at over $50 billion next year.

Valuation metrics show that the company has a forward price-to-earnings ratio of 9.8, much lower than the sector median of 21.50.

The multiple is also much lower than the five-year average of 16.70.

The company is also a bargain based on the rule-of-40 metric.

Its forward revenue growth is 35%, while its profit margin is about 5%, giving it a multiple of 40.

The cheaper valuation is mostly because of the ongoing challenges, including the reputational challenges.

Also, the server industry is highly competitive, with companies like Dell and HP Enterprise gaining market share.

SMCI stock price technical analysis 

Super Micro Computer stock chart | Source: TradingView 

The three-day chart shows that the SMCI stock price has crashed in the past few years, moving from a record high of $122 in March 2024 to the current $24.

It recently dropped below the important support level at $28.15, its lowest level on January 12.

The stock has dropped below the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bears remain in control. It remains below the Supertrend indicator.

Supermicro stock also dropped below the lower side of the rising wedge pattern, a common bearish reversal sign in technical analysis.

Therefore, the stock will likely have a strong bearish breakdown, potentially to the next key support level being at $16.8, its lowest level on November 13.

A drop below that level will point to more downside, potentially to the psychological level at $15.