Why SMART (SGH) Shares Are Getting Obliterated Today
What Happened:
Shares of semiconductor maker SMART Global Holdings (NASDAQ:SGH) fell 22.6% in the pre-market session after 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.
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What is the market telling us:
SMART's shares are quite volatile and over the last year have had 14 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 four months ago, when the stock gained 8.57% on the news that 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.
SMART is up 7.74% since the beginning of the year, but at $16.21 per share it is still trading 44.1% below its 52-week high of $29.01 from June 2023. Investors who bought $1,000 worth of SMART's shares 5 years ago would now be looking at an investment worth $1,030.
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