(Bloomberg) — A roller-coaster ride for Super Micro Computer Inc. shares is likely to continue for some time, as investors weigh the company’s next steps to avoid being delisted by Nasdaq Inc.
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Shares of the server maker rose as much as 13% in early trading Friday, extending its weekly gains to about 78%, putting the company on track for its best week on record after it hired BDO USA as its independent auditor and filed a plan to comply with Nasdaq listing requirements. The sharp rebound in shares is the latest twist in a saga that saw the stock hit a record high in March before seeing those gains evaporate amid allegations of accounting and governance issues and filing delays.
The company this week said that it believes it can file its delayed 10-K and 10-Q reports in the period available under Nasdaq rules. If Super Micro’s proposal is accepted, it would likely get until mid-February to file. That sets up months of further uncertainty — leaving investors to decide whether to stick with the stock in hope of a recovery, or bail out.
“I really think it’s just a complete coin toss right now,” said Larry Tentarelli, chief technical strategist at Blue Chip Daily. Tentarelli said he previously held shares of Super Micro but sold near the end of July when the stock was in the $80 range.
Representatives for Super Micro and Nasdaq declined to comment.
The San Jose, California-based firm delayed filing its annual 10-K, following a damaging report earlier this year from short seller Hindenburg Research, and has said it would be late with quarterly reports.
The firm’s previous auditor, Ernst & Young LLP, resigned in October, citing concerns over the company’s transparency and governance. Super Micro is also facing a US Department of Justice probe.
Bloomberg Intelligence analyst Woo Jin Ho is reserving judgment on whether Super Micro can recover.
“The filing extension gives the company until late February to file the documents, yet the delisting overhang appears likely to persist until it’s compliant,” he wrote. “Given the challenges that Ernst and Young noted working with Super Micro’s board, it’s unclear if BDO will face similar issues.”
Nasdaq must now review and approve the company’s plan, a process that is expected to take about two weeks. If the exchange doesn’t accept the proposal, Super Micro can appeal the decision. Shares will remain listed in the meantime.
Others on Wall Street are more bullish, seeing Super Micro as too important to be delisted and booted from the S&P 500 Index. The company won inclusion in the benchmark gauge in March, further juicing its staggering returns to that point.
With the possibility of a delisting now reduced, “we expect the stock to make a run for our price target in the near-term,” said Lynx Equity Strategies analyst KC Rajkumar, who has a target of $45, implying more than 50% upside from Thursday’s close.
Still, several other analysts aren’t willing to make a call, with at least seven firms suspending coverage on the stock since the end of October, when previous auditor Ernst & Young LLP resigned, according to data compiled by Bloomberg.
While weighing up Super Micro’s prospects, investors also have their eye on competitors. The company’s woes could be a potential boon to rival server makers including Dell Technologies Inc., Lenovo Group Ltd. Wiwynn Corp., Hon Hai Precision Industry Co. and Pegatron Corp., according to Bloomberg Intelligence. Dell shares have risen in November while Super Micro slumped.
On the flip side, with the possibility of a Super Micro delisting now reduced, hardware peers such as Dell may “stand in danger of a stock fade,” Lynx analyst Rajkumar wrote.
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Earnings Due Friday
–With assistance from Sunil Jagtiani and David Watkins.
(Updates stock move at market open, adds company response)
