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Valued at $879 million by market cap, Penguin Solutions Inc. (PENG) is involved in designing, developing, and packaging memory and storage solutions. Their portfolio includes DRAM modules, LED lighting products, solid-state/flash storage servers, Internet of Things (IoT) and surveillance solutions, design services, professional services, data center services, and managed services.
Incorporated in 1988 and previously known as SMART Global Holdings, Penguin Solutions has expanded its customer base to include clients from the education, financial services, government, energy, healthcare, and telecommunication industries.
Small-cap PENG stock is down about 11% year to date, and set a 52-week low of $14.87 as recently as Oct. 31.
Priced under $20 per share, and currently valued at a relative discount of 9.40 times forward adjusted earnings, should you consider scooping up this growth stock while it's cheap? Here's a closer look at what's behind the stock's decline, and what analysts see going forward.
Penguin Solutions Sells Off on Weak Results
Penguin Solutions published its fiscal fourth-quarter results last month on Oct. 15, posting a loss of $24.5 million, or $0.46 per share, against a profit of $64.8 million, or $1.17 per share, reported in the same quarter last year. Adjusted earnings came to $0.37 per share, missing the consensus estimate of $0.40 per share. Revenue for the quarter totaled $311.1 million, down 1.7% YoY, while also again falling short of analysts' estimate of $325 million.
For the full year 2024, revenue reached a total of $1.2 billion, down from $1.4 billion reported the previous year. Gross margin came to 29.1%, increasing 30 basis points YoY while earnings per share came to $1.25 per share, down from $2.52 per share in 2023.
“We are pleased with our Q4 results, highlighted by our third consecutive quarter of sequential top line growth. Our Company’s transition to Penguin Solutions reinforces our commitment to solving the complexities of AI infrastructure, managing our customers’ implementations with the design, build, deployment, and management of cutting-edge AI solutions,” said CEO Mark Adams.
Management forecasts revenue growth of 15% for FY2025, with analysts anticipating revenue of $1.4 billion, which translates to growth of 20% YoY. Earnings per share, on the other hand, are expected between $1.50 and $1.90, against analysts' $1.92 per share estimate.
PENG fell 23.5% in a single session on Oct. 16 as Wall Street reacted to the Q4 earnings and FY2025 guidance.
A Fresh “Buy” Rating for Penguin Solutions
Analysts appear relatively unbothered by PENG's steep post-earnings sell-off, and the stock's consensus rating has actually ticked higher recently, thanks to a new “Buy” initiation at Goldman. The average opinion among the five experts in coverage is a “Strong Buy,” with not a single “Hold” or “Sell” rating on the stock.
Most recently, Goldman Sachs (GS) analyst Michael Ng initiated coverage with a “Buy” rating, and labeled PENG as “well positioned” to leverage growth opportunities in the enterprise AI compute market, based on its depth of experience. Noting that this booming niche should help to drive the top line and pad margins as the company continues to generate roughly half of revenue from more cyclical markets, Ng set a price target of $21 for the shares.
The mean price target for PENG is even more ambitious, at $26.00 - implying upside potential of more than 54% from current prices.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
