Super Micro Computer (NASDAQ: SMCI), one of the Nasdaq's best performers this year, is offering investors a golden opportunity. The high-flying stock that even beat the first-half performance of market darling Nvidia, is splitting its stock in a few weeks. The idea is to lower the per-share price, making the stock more accessible to a broader range of investors.
This technology giant has soared over the past five years, advancing more than 2,200%, as it became a favorite of artificial intelligence (AI) customers. Companies focused on AI have been putting in their orders for Supermicro's equipment, such as servers and full rack scale solutions, for their data centers. And this has helped the 30-year-old Supermicro report higher revenue in the latest quarter than it reported for the entirety of the 2022 fiscal year. The momentum continues, with the company forecasting as much as 230% revenue growth in the next quarter.
Considering all of this, Supermicro makes a great addition to any growth portfolio. But now the question is should you buy the stock before the upcoming split or wait? Let's take a look at what history says.
The details of Supermicro's stock split
First, a bit about stock splits in general and the details of Supermicro's operation. Stock splits involve the issuance of additional shares to current holders to bring down the price of each individual share. They don't change the total market value of the company or the total value of an investor's holding. And they don't change anything fundamental about the particular company so investors won't go out and buy a stock just because it's launching a split.
But there is something positive about a split. These operations make it easier for smaller investors to get in on a previously high-priced stock without turning to fractional shares. Fractional shares often are a good option, but they aren't offered by every brokerage. So, a lower per-share price opens the door to all investors.
Supermicro announced a 10-for-1 stock split, meaning that for every share you own, you'll receive nine additional shares. Considering the current price of about $430, the post-split price will be about $43 per share. The stock will begin trading at the split-adjusted price on Oct. 1.
Though Supermicro has been a top performer in recent years and even through the first half of this year, it's had a rough couple of months. The stock has dropped more than 60% from its peak earlier this year. Investors frowned on a narrowing of gross margin and earnings per share that missed analysts' expectations in the most recently reported quarter, delivered in early August.
Bad news for Supermicro
On top of this, two other pieces of news hit the stock later in the month: Hindenburg Research released a short report, alleging troubles at Supermicro, and separately, Supermicro announced it would be late filing its 10-K annual report. So stock has lost its positive momentum over the past several weeks, but I think these are short-term troubles and won't alter the company's long-term growth story.
Now, before deciding whether to buy Supermicro before or after the split, let's look at what history tells us. From 1980 through today, stocks that have split delivered an average total return in the 12 months following the announcement of more than twice the return of the S&P 500 -- 25.4% versus 11.9% for the index. This is according to Statista, based on Bank of America's Research Investment Committee data.
If Supermicro follows this pattern, more gains could be ahead for this technology stock, and that means you could benefit by buying the stock now, ahead of the split.
Two points to keep in mind
That said, it's important to keep a couple of things in mind. First, history offers us a general idea of what may happen -- but nothing is guaranteed. Stocks and the market itself could surprise us at any point. Second, the recent news weighing on Supermicro might continue to impact the stock's performance in the coming weeks. It may take the filing of Supermicro's 10-K and even an additional earnings report to help the stock regain its positive momentum.
So, what should investors do? It's time to look at valuation. Now is a great time to buy Supermicro because you can get in on a great long-term growth story for a song -- the stock is trading for only 12x forward earnings estimates. If Supermicro follows historical patterns it could lift your portfolio in the coming year, but even if it doesn't, you still have a solid chance of winning with this company that has what it takes to deliver earnings growth and stock performance over the long term.
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Should You Buy Super Micro Computer Before its Upcoming Stock Split? Here's What History Says. was originally published by The Motley Fool