SMART Global Holdings Is A Buy Before Earnings
Insiders have been selling shares of SMART Global Holdings (NASDAQ: SGH) but you shouldn’t be. The company is incredibly well-positioned as a global manufacturer of microchip and LED-based components used by industries of all varieties and it is seeing wicked growth. With the global microchip shortage driving record demand and demand from end-users still strong we are expecting to see the company outperform its consensus estimates by very large margins and drive share prices even higher.
Insider selling was strongest in the early part of the year but slacked off noticeably when share prices broke out to new highs. Selling continued into the calendar 4th quarter but at a diminished level and at a pace inconsequential to the price action. The total amount of selling over the past 12 months, however, amounts to about 30% of the company so it is something to pay attention to.
The mitigating factor is institutional activity. While insider selling has slacked off institutional activity has been picking up and driven total ownership to over 92.5%. Institutional buying has, over the past 12 months, equaled about 25% of the company on a $ basis based on average share price this year. Notable buyers of the stock in Q4 include UBS and AIG.
The Analysts Are Driving SMART Global Holdings Higher
There aren’t many analysts covering SMART Global Holdings right now but there are enough to drive the share prices higher. The consensus rating of the 6 current ratings amounts to a Firm Buy with a price target of $75.50. That implies about 5.5% of upside for the stock but does not reflect the trend in the sentiment. The consensus estimate is up more than double over the past year, 15% in the last 90 days, and 11% in the last 30 on an increasingly bullish outlook. The latest shout-out came from Rosenblatt Securities which reiterated a Buy rating but upped its price target to the high of $100. That target implies about 41% of upside for the stock and we see it becoming the consensus target very quickly.
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Generally speaking and in relation to the consensus estimate, the analysts are grossly underestimating this company’s Q4 results. The current consensus is calling for a sequential decline in both revenue and earnings that we just don’t see coming. In our view, the company should post a low to mid-single-digit increase in revenue and see the strength leveraged on the bottom line. This has the company outpacing consensus by 670 basis points on the top line with a double-digit increase in earnings. The question for us is how deeply supply chain constraints and inflation cut into results (how much better could the quarter have been) and if backlogs are still growing. SMART Global Holdings is scheduled to report earnings on January 4th, 2022.
The Technical Outlook: SMART Global Holdings Waves A Bullish Flag
SMART Global Holdings has been rallying strongly over the past few months and looks like it will accelerate that trend soon. The price action has the look of a Bullish Flag and, if confirmed, would lead to at least another $14 of upside. That would put the price action near the $86 level and within striking distance of the high price target of $100. Assuming the analysts continue to be impressed with results, we see another round of upgrades coming in January 2022 that could drive the price up to and over the $100 level.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| SMART Global (SGH) | $18.49 | +4.1% | N/A | -5.02 | Buy | $30.70 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
