Shares of electronic memory solutions provider Smart Global Holdings (SGH) jumped about 18% at the close of trade on Wednesday after the company’s strong Q3 show. Let us take a look at the company’s Q3 performance, its guidance, and what the company’s risk factors mean for its investors.
Buoyed by growth across SGH’s focus areas of core, edge (SMART embedded and wireless businesses), and cloud, sales jumped 56% year-over-year and 44% sequentially to $437.7 million, beating analysts’ estimates of $415.6 million. Adjusted EBITDA of the company surged 102.3% year-over-year to $51.4 million.
CEO of SGH Mark Adams said, “In its first quarter as part of the SGH family, Cree LED achieved strong results. Coupled with continued top-line growth in our Intelligent Platform Solutions Group and strong operating performance in our Memory Solutions Group, comprised of Specialty memory and Brazil, these results reinforce the benefits of our growth and diversification strategy.”
Furthermore, SGH’s earnings per share jumped 98.6% year-over-year to $1.39, beating consensus of $1.09.
Looking ahead to Q4, SGH estimates sales to be between $440 million and $480 million, a 55% jump year-over-year at the midpoint. SGH expects diluted earnings per share to be in the range of $1.60 plus or minus $0.15. (See Smart Global stock chart on TipRanks)
Smart Global Holdings Risk Factors
According to the new Tipranks Risk Factors tool, SGH’s main risk category is Finance & Corporate, which accounts for 33% of the total 76 risks identified for the stock. The next two major risk factor contributors are Macro & Political and Legal & Regulatory at 17% and 16%, respectively. Since May, the company has added one new risk factor under Legal & Regulatory.
SGH operates in different geographies. In China, the government has enacted laws pertaining to corporate organization & governance, foreign investment, currency control, commerce, taxation, and trade. These laws and regulations are evolving and changing with time. Therefore, the company’s capacity to enforce commercial claims or resolve commercial disputes remains unpredictable.
Compared to the sector average Finance & Corporate risk factor of 41.5%, SGH is at 33%, indicating that owning the stock is less risky versus the broader sector.
Analyst Recommendations
Following SGH’s Q3 performance, Rosenblatt Securities analyst Kevin Cassidy reiterated a Buy rating on the stock and increased the price target to $75 (33.9% upside potential) from $70.
Cassidy said, “All product groups are outperforming our expectations. Upside is coming from demand for AI systems, data-intensive compute requirements, increasing unit demands, and growing markets for LED…This quarter demonstrates that SGH is a secular story with 10+% topline growth and margin expansion.”
Based on 5 unanimous Buys, consensus on the Street is a Strong Buy. The average Smart Global price target of $70.80 implies 26.4% upside potential. Shares are up 102.2% over the past year.
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