Is now the time to add Super Micro Computer (NASDAQ:SMCI) to your watchlist?

The excitement of investing in a company that can turn its fortunes around is a big draw for some speculators, so even companies that have no revenue, no profit, and a long track record can find investors. But the reality is that if a company loses money every year for long enough, its investors usually take their share of those losses. A loss-making company has yet to prove itself with profits, and eventually the inflow of outside capital may dry up.

Although we are in the era of high-sky investing in technology stocks, many investors still follow a more traditional strategy. They buy shares of profitable companies such as Super-microcomputer (NASDAQ:SMCI). While this doesn’t necessarily mean the company is undervalued, the company’s profitability is enough to justify some appreciation – especially if it’s growing.

Check out our latest analysis for Super Micro Computer

How quickly is Super Micro Computer growing its earnings per share?

Over the past three years, Super Micro Computer’s earnings per share have soared; so much so that it’s a little dishonest to use these numbers to derive long-term estimates. So it makes sense to focus on recent growth rates instead. Notably, Super Micro Computer’s earnings per share have increased from $12.09 to $20.63 over the past year. Such year-on-year growth of 71% is a rarity. It could be a sign that the company has reached a real inflection point.

Revenue growth is a good indicator of sustainable growth, and when combined with a high earnings before interest and tax (EBIT) margin, it’s a great way for a company to maintain its competitive advantage in the market. In terms of revenue, Super Micro Computer has performed well over the past year, growing its revenue by 110% to US$15 billion. However, EBIT margin numbers have been less impressive, recording a decline over the past 12 months. So if EBIT margins can stabilize, this revenue growth should pay off for shareholders.

In the graph below you can see how the company has grown profit and revenue over time. Click on the graph to see the actual numbers.

You don’t drive with your eyes in the rearview mirror, so you might be more interested in the free Report with analyst forecasts for Super Micro Computers Future profits.

Are Super Micro Computer insiders on the same page as all shareholders?

Since Super Micro Computer has a market capitalization of US$36 billion, we wouldn’t expect insiders to own a large portion of the shares. But we are reassured that they are investors in the company. In particular, they own an enviable stake in the company, valued at US$9.2 billion. That’s a total of 26% of the company’s shares. Enough to steer management’s decision-making process in a direction that will bring the greatest benefit to shareholders. So there’s an opportunity to invest in a company whose management has concrete incentives to deliver results.

It’s good to see that insiders have invested in the company, but is the compensation fair? Our quick analysis of CEO compensation seems to suggest otherwise. Our analysis found that the average total compensation for CEOs of companies like Super Micro Computer with a market capitalization of over US$8.0 billion is around US$13 million.

Super Micro Computer’s CEO received only $1.00 in total compensation for the year ending June 2023. One could view this compensation as rather tokenistic, suggesting that the CEO does not need high compensation to stay motivated. The level of CEO compensation is not the most important metric for investors, but when compensation is modest, it supports greater alignment between the CEO and ordinary shareholders. More broadly, it can also be a sign of a culture of integrity.

Is it worth keeping an eye on the super microcomputer?

Super Micro Computer’s earnings per share have soared, with growth rates sky-high. An added bonus for those interested is that management holds a bunch of shares and the CEO’s compensation is quite reasonable, showing good cash management. The sharp improvement in earnings per share suggests that business is humming. Super Micro Computer certainly ticks a few boxes, so we think it’s probably worth further consideration. Before you get too excited, though, we’ve found out 3 Warning Signs for Super Micro Computer (1 is a bit worrying!) that you should know about.

While Super Micro Computer certainly looks good, it could be attractive to more investors if insiders were to snap up shares. If you like to see companies that have more ownership, then check out this handpicked selection of companies that not only boast strong growth, but also have strong insider support.

Please note that the insider transactions discussed in this article are reportable transactions in the respective jurisdiction.

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.