Tech stock Super Micro Computer broke out of a cup base and hit an all-time high on Wednesday. It is today's IBD 50 Stocks to Watch pick.
The company holds the top spot out of 13 stocks in the Computer-Hardware/Peripheral industry group, which is 135th out of the 197 IBD groups.
The storage and server manufacturer specializes in enterprise, cloud, AI and 5G IT infrastructure. Super Micro, which does business as Supermicro, is striving to be a "Total IT Solutions" provider, with environmentally-friendly and energy-saving servers, AI, storage, IoT, switch systems, software and services.
They also offer high-volume motherboards, power and chassis products.
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Tech Peripheral Stock Gaps Up And Hits New High
SMCI shares soared 12.5% Wednesday after the company reported better-than expected fiscal Q1 2023 EPS and sales numbers after Tuesday's close.
The tech stock broke out of a deep cup base, hitting the 75.03 buy point in heavy volume not seen since June 2020. It notched a 52-week and all-time high, but has pulled back and is extended from the 5% buy zone, which stretches to 78.78.
Wedbush raised its price target to $65 after the news but maintained its neutral rating.
Shares have been trending higher since Oct. 20 when Supermicro raised Q1 2023 net sales guidance and adjusted EPS above estimates. It gapped up above its 50-day moving average in heavy volume on the news.
The relative strength line hit a new high on the MarketSmith chart, as indicated by the blue dot.
Impressive EPS and Sales Growth
Supermicro reported enormous EPS growth of 490%, 223% and 210% in the last three quarters. Sales growth accelerated to 79% at the same time, from 53% and 51% in the prior periods.
Gross margin increased to 18.8%, from 13.4% in the same quarter last year.
"In Q1 fiscal 2023, our revenue reached a record $1.85 billion dollars, which makes it our 7th consecutive quarter of accelerating YoY growth, " said Charles Liang, chairman and CEO.
"The 79% YoY quarterly growth is about 10 times faster than the current industry average," he added.
Expect More Growth For This Tech Stock
Tech stock analysts are projecting 67% fiscal 2023 EPS growth, with a 6% pullback from that lofty level in 2024. Earnings have grown an average 32% in the last three years while sales have grown at a 20% clip, according to the IBD Stock Checkup.
Supermicro holds best-possible 99 scores on Composite and EPS Ratings. It has also scored a 98 Relative Strength Rating, meaning it has outperformed 98% of the stocks in the IBD database.
SMCI stock boasts a 25% return on equity, well above the 17% minimum in the CAN SLIM investing strategy, and a top-notch "A" SMR Rating.
This rating combines three gauges: sales growth, profit margins, and return on equity (ROE). The rating goes from "A" to "E", with "A" being the best and "E" the lowest.
Institutions Getting On Board
Mutual funds own 52% of outstanding shares, with 406 holding the stock in September, up from 256 in June.
Increasing institutional ownership shows conviction by big money managers, which can support the stock in the longer term. Management owns 15% of shares.
