Why SMART (SGH) Stock Is Trading Up Today

Kayode Omotosho /
2024/07/10 12:20 pm EDT

What Happened:

Shares of semiconductor maker SMART Global Holdings (NASDAQ:SGH) jumped 18.7% in the afternoon session after the company reported second-quarter earnings results that blew past analysts' EPS estimates. Gross margin also improved significantly during the quarter. 

On the other hand, its revenue guidance for next quarter and this quarter's revenue missed analysts' expectations. Notably, the business recorded improvements in the advanced memory technology segment (which drives roughly 30% of revenue). Notably, the segment struggled in recent quarters, as revenue grew quarter on quarter, compared to the decline recorded in the previous quarter. Regarding the outlook for the next quarter, management set a more optimistic tone compared to the recent quarter, adding that "Sales improved from Q2 levels as we expected, and we believe we will continue to improve from here." Overall, this quarter still seemed fairly positive and shareholders should feel optimistic.

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What is the market telling us:

SMART's shares are very volatile and over the last year have had 13 moves greater than 5%. But moves this big are very rare even for SMART and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 9 months ago, when the stock dropped 22.6% on the news that the company reported earnings that fell short of expectations in the wake of its divestiture of SMART Modular Brazil, of which it owned 81%. The divestiture was announced in June 2023. Divestitures sometimes lead to messy financials and unclear guidance in the near term, and SMART is no exception. This was the first quarter after the divestiture was announced, and hence, its revenue missed Wall Street's estimates and guidance underwhelmed. 

Overall, the results could have been better, and investors are likely confused/unsure about the company's future given the situation.

SMART is up 50% since the beginning of the year, and at $27.47 per share it is trading close to its 52-week high of $27.68 from July 2023. Investors who bought $1,000 worth of SMART's shares 5 years ago would now be looking at an investment worth $1,836.

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