What a fantastic six months it’s been for Super Micro. Shares of the company have skyrocketed 60.5%, hitting $58.91. This performance may have investors wondering how to approach the situation.

Is now still a good time to buy SMCI? Or are investors being too optimistic? Find out in our full research report, it’s free for active Edge members.

Why Are We Positive On SMCI?

Founded in Silicon Valley in 1993 and known for its modular "building block" approach to server design, Super Micro Computer (NASDAQ: SMCI) designs and manufactures high-performance, energy-efficient server and storage systems for data centers, cloud computing, AI, and edge computing applications.

1. Skyrocketing Revenue Shows Strong Momentum

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Super Micro’s 45.8% annualized revenue growth over the last five years was incredible. Its growth surpassed the average business services company and shows its offerings resonate with customers.

2. Economies of Scale Give It Negotiating Leverage with Suppliers

With $21.97 billion in revenue over the past 12 months, Super Micro is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.

3. Increasing Free Cash Flow Margin Juices Financials

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Super Micro’s margin expanded by 5.1 percentage points over the last five years. Super Micro’s free cash flow margin for the trailing 12 months was 7%.

Final Judgment

These are just a few reasons why we think Super Micro is an elite business services company, and after the recent surge, the stock trades at 22.9× forward P/E (or $58.91 per share). Is now the time to buy despite the apparent froth? See for yourself in our full research report, it’s free for active Edge members.

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