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Category: Stock Market and Smart Global
Date: 6 October 2019 Stock Price: $27.29 We take a look at the 4th quarter earnings report of their 2019 fiscal year of Smart Global Holdings a firm specialising in speciality memory, storage and hybrid solutions servicing the electronics industry.
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About Smart Global
SMART Global Holdings, Inc. (“SMART” or “SGH”) is a global leader in specialty memory, storage and hybrid solutions serving the electronics industry for over 25 years. SMART delivers components, modules and solutions to a broad OEM customer base, in computing, networking, communications, storage, mobile and industrial markets. With the addition of Penguin Computing and the creation of a new business unit, SMART Specialty Compute & Storage Solutions (SCSS), SMART has expanded its serviceable markets into areas requiring specialized computing platforms in artificial intelligence (AI) and machine learning (ML), advanced modeling and high performance computing serving a broad base of enterprise and government customers. Customers rely on SMART as a strategic supplier offering extensive customer specific design capabilities and quality products with value added testing services, technical support, a global footprint and the ability to provide locally manufactured memory products in multiple geographies. SMART’s global, diversified customer base of over 250 customers includes some of the most well-recognized names in the technology industry.
Its strategic presence in the U.S., Europe, Asia and Latin America enables SMART to provide customized, integrated supply chain services assisting OEM customers in the management and execution of their procurement processes and asset management on a worldwide basis. In Brazil, SMART has established itself as a market leader as the largest in-country manufacturer of mobile memory products for smartphones, and the largest in-country manufacturer of memory components and modules for desktops, notebooks and servers. Close collaboration with customers while providing custom designs, extended life cycle solutions and proprietary supply chain services, creates significant customer engagements and loyalty.
Overview of Smart Global's latest earnings report
- Total sales: $278.4 million (up from $235.657 million for the same quarter of the previous year)
- Total sales increased by 18.14% over the last 12 months
- Cost of sales: $226.108 million (up from $192.622 million for the same quarter of the previous year)
- Cost of sales increased by 17.38% over the last 12 months
- Net income: $5.625 million (up from $1.945 million for the same quarter of the previous year)
- Diluted earnings per share: $0.24 (up from $0.08 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 23.825 million (up from 23.330 million for the same quarter of the previous year)
- Cash and cash equivalents: $98.139 million
- Cash and cash equivalents per share: $4.11
- Cash and cash equivalents makes up 15.1% of Smart Global's market capital
- Cash and cash equivalents makes up 13.65% of Smart Global's total assets
- Accounts receivable: $233.351 million
- Accounts receivable makes up 32.4% of Smart Global's total assets
- Stockholders equity of Smart Global: $271.925 million
- Stockholders equity per share for Smart Global: $11.41
- So Smart Global's is trading at 2.39 times it stockholders equity per share which is well within the expected range of between 2 and 4 times most companies tend to trade at..
- Stockholders equity per share for Smart Global: $11.41
- Cash generated from operations: $48.940 million
- Cash generated from operations per share: $2.05
Smart Global's management commentary on the results and business outlook
“Fiscal 2019 was a year of two halves. In the first half we experienced a healthy memory pricing environment and our financial results benefited from that strength. In the second half of fiscal 2019 component pricing in the memory market declined significantly, which primarily impacted our business in Brazil and, to a lesser extent, our Specialty Memory Products, and resulted in overall revenues in fiscal 2019 declining year-over-year by 6%,” commented Ajay Shah, Chairman and CEO.
“Despite this challenging business environment, our Specialty Memory Products business grew year-over-year, and our Specialty Compute and Storage Solutions business finished strong representing 30% of total net sales for the fourth quarter of fiscal 2019. Additionally, during the year we added $66.8 million in cash while utilizing an additional $75 million to complete two significant acquisitions that are both accretive to earnings in the first full quarter of operations.”
“In Brazil, the new points-based system for local manufacturing became effective July 1, 2019. We are encouraged by the rebound in our forecasted unit volumes since the new rules went into effect,” continued Mr. Shah. Jack Pacheco, Chief Operating Officer and Chief Financial Officer, added, “Fourth quarter fiscal 2019 financial results were below our previous guidance primarily due to weakness in our supply chain services business, which is reported as part of Specialty Memory Products.”
Business Outlook
The following statements are based upon management's current expectations for the first quarter of fiscal 2020 ending November 29, 2019. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.
“Despite this challenging business environment, our Specialty Memory Products business grew year-over-year, and our Specialty Compute and Storage Solutions business finished strong representing 30% of total net sales for the fourth quarter of fiscal 2019. Additionally, during the year we added $66.8 million in cash while utilizing an additional $75 million to complete two significant acquisitions that are both accretive to earnings in the first full quarter of operations.”
“In Brazil, the new points-based system for local manufacturing became effective July 1, 2019. We are encouraged by the rebound in our forecasted unit volumes since the new rules went into effect,” continued Mr. Shah. Jack Pacheco, Chief Operating Officer and Chief Financial Officer, added, “Fourth quarter fiscal 2019 financial results were below our previous guidance primarily due to weakness in our supply chain services business, which is reported as part of Specialty Memory Products.”
Business Outlook
The following statements are based upon management's current expectations for the first quarter of fiscal 2020 ending November 29, 2019. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.
Smart Global (NASDAQ: SGH) stock price history
The image below, obtained from Google, shows the stock price history of Smart Global since their listing. And it's been a decent time for Smart Global stockholders. At listing the stock was trading at around $13.30 a stock and its currently trading at $27.29 a stock. That's a very strong return of 105.1% provided to Smart Global stockholders since their listing. The stock of Smart Global is trading at a lot closer to its 52 week high of $35.10 than it is to its 52 week low of $16.94 which to us is a clear indication that the short term sentiment and momentum of Smart Global stock is very positive at this point in time.
Smart Global (NASDAQ: SGH) latest stock valuation
So what is Smart Global (NASDAQ: SGH) stock worth based on the release of their latest earnings report and outlook provided? Based on the group's latest earnings and their outlook provided our valuation model provides a target (full value) at $38.40 a stock. We therefore believe that the stock is undervalued.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $38.40. Thus we see a good entry point into Smart Global's stock at $35.60 or below. Since the stock is trading at well below our suggested entry point we value Smart Global as a buy.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $38.40. Thus we see a good entry point into Smart Global's stock at $35.60 or below. Since the stock is trading at well below our suggested entry point we value Smart Global as a buy.