Stock Story -
What Happened: Shares of semiconductor maker SMART Global Holdings (NASDAQ:SGH) jumped 8.9% in the pre-market session after the company announced a $200 million preferred equity investment from affiliate, SK Telecom.
According to the terms of the deal, the $200 million investment will acquire 200,000 preferred shares, which are convertible into ordinary shares of SGH at a conversion price of $32.81 per preferred share.
The stock is likely down due to concerns about the dilutive effect of the preferred shares, which can be converted to the company's ordinary stock, raising the total share count. After the initial pop the shares cooled down to $27.70, down 5.6% from previous close.
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What is the market telling us: SMART's shares are very volatile and over the last year have had 14 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move we wrote about was 6 days ago, when the stock gained 18.7% on the news that 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.
SMART is up 51.2% since the beginning of the year, and at $27.70 per share it is trading close to its 52-week high of $29.35 from July 2024. Investors who bought $1,000 worth of SMART's shares 5 years ago would now be looking at an investment worth $1,764.
