Rocketing to a price of $626.69 during today's morning trading session, shares of Super Micro Computer are still -28.36% below their average target price of $874.81. Could there be more upside potential for the stock? Analysts are giving SMCI an average rating of buy and target prices ranging from $325.0 to $1500.0 dollars per share.
The market, on the other hand, is a bit more pessimistic. Super Micro Computer's short interest -- meaning the percentage of its share float that is being shorted on an expectation of a price decline -- is quite high at 121.1%. The float includes only shares that are available for public trading, and excludes preferred shares.
Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.
Another way to gauge the sentiment on Super Micro Computer is to look at the percentage of institutions that are invested in the stock. In this case, 55.7% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.
If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.
Overall, there is mixed market sentiment on Super Micro Computer because its an analyst consensus of strong upside potential, a buy rating, an unusually large proportion of its shares sold short, and an average number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.
Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are SMCI's recent cash flows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 663,580 | 36,793 | 626,787 | 228.97 |
| 2022 | -440,801 | 45,182 | -485,983 | -848.37 |
| 2021 | 122,955 | 58,016 | 64,939 | 186.97 |
| 2020 | -30,334 | 44,338 | -74,672 | -131.41 |
| 2019 | 262,554 | 24,849 | 237,705 | 299.35 |
| 2018 | 84,347 | 24,824 | 59,523 |
