What Happened:
Shares of semiconductor maker SMART Global Holdings (NASDAQ:SGH) jumped 8.57% in the morning session after the company reported third-quarter results that exceeded analysts' expectations for revenue and earnings per share (EPS). Inventory levels also improved, which could be a positive sign for where the company is in the cycle and for future financial performance. However, there was a deterioration in operating margin. Additionally, on the negative front, revenue guidance for the next quarter missed analysts' expectations. However, EPS guidance beat. Lastly, the CEO reminded investors that the June 13th sale of 81% interest in SMART Brazil continues the company's "transformation to a high-performance, high-availability enterprise solutions company, and believe we are positioned to benefit from emerging trends in AI, machine learning and data analytics." Overall, it was a mixed quarter for the company, but we were encouraged that quarterly results beat and EPS guidance was ahead.
What is the market telling us:
SMART's shares are quite volatile and over the last year have had 22 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was 17 days ago, when the stock gained 5.26% on the news that the company divested its 81% stake in its Brazil-based unit to Lexar Europe B.V. for $166 million in cash. The purchase price values 100% of SMART Brazil at an enterprise value of $205 million, and SGH will retain a 19% stake in SMART Brazil. The sale of this stake is a positive sign because it will likely strengthen SGH's financial position, enabling it to increase investments in research and development. It will also allow SMART to increase its focus on its U.S.-based operations and technologies.
SMART is up 87.7% since the beginning of the year. Investors who bought $1,000 worth of SMART's shares 5 years ago would now be looking at an investment worth $1,790.
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