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Super Micro Computer Rated Strong by Warren Buffett Model

Super Micro Computer (SMCI) scores 63% under Buffett's Patient Investor strategy, indicating long-term investment potential. However, it fails on return metrics, which might impact investor confidence.

Date: 
AI Rating:   5

Super Micro Computer Inc. (SMCI) has received a rating of 63% according to Warren Buffett’s Patient Investor strategy. This score suggests the company has decent underlying fundamentals but is below the threshold of 80% that typically indicates strong interest from the strategy.

Earnings Predictability: The company has passed the earnings predictability test, which is a positive indicator for stability in earnings and could reflect well on the stock price, suggesting that earnings are likely to remain consistent.

Debt Service: SMCI also passed the debt service requirements. This is essential for risk management, as a company with manageable debt levels is less likely to face financial difficulties during downturns.

Return on Equity (ROE) and Return on Total Capital: Both areas have recorded failures, meaning the company's efficiency in generating profits from shareholder equity and total capital is subpar. This could deter potential investors who prioritize return metrics, leading to stagnation or decline in stock price.

Free Cash Flow (FCF): SMCI has also failed to pass this test, indicating that the company may not have sufficient cash flow to cover expenses, fund growth, or return capital to shareholders. Free cash flow is critical for making strategic business decisions and could place the company at a disadvantage compared to competitors.

Use of Retained Earnings: On a positive note, the company has passed the test concerning the use of retained earnings, suggesting it effectively reinvests back into the business to foster growth. This could reflect positively in the long term.

Overall, while Super Micro Computer has some strong points, the failures regarding ROE, total capital return, and free cash flow represent significant concerns. Professional investors should approach with caution, as these metrics could affect stock performance over a 1 to 3-month holding period.

Stocks:  SMCI