Why SMART Global Holdings Inc. Stock Dropped Today

What happened

Shares of SMART Global Holdings Inc. (NASDAQ: SGH) were down 10.2% as of 2:00 p.m. EDT Friday despite strong fiscal third-quarter 2018 results from the specialty memory and storage company.

More specifically, SMART Global’s quarterly revenue soared 62% year over year to $335.5 million, which translated to adjusted (non-GAAP) net income of $1.84 per share. Both figures compare favorably to SMART Global’s guidance provided in March, which called for lower per-share earnings of $1.74 to $1.82 on revenue in the range of $320 million to $340 million.

IMAGE SOURCE: GETTY IMAGES.

So what

SMART Global chairman and CEO Ajay Shah called it a “strong sales quarter,” with particularly strong showings from both the company’s Specialty and Brazil businesses — though the company’s GAAP earnings did absorb a negative impact of $0.27 per share related to recent depreciation of the Brazilian real.

Shah also singled out SMART’s recent acquisition of Penguin Computing, adding:

Penguin is the cornerstone of our new business unit, SMART Specialty Compute & Storage Solutions (SCSS), and greatly expands the markets and technologies where we can participate into areas requiring specialized computing platforms in artificial intelligence, machine learning, advanced modeling and high performance computing. We expect to leverage our proven system design and integration capabilities and create a more diversified business.

Now what

For the current fiscal fourth quarter, SMART Global expects revenue in the range of $360 million to $380 million, and adjusted earnings per share of $1.62 to $1.71. By comparison, most investors were looking for earnings near the high end of that range on lower revenue of $357.7 million.

In the end, perhaps the market is frowning upon SMART Global’s slight bottom-line guidance shortfall — though it’s worth noting that SMART Global has a habit of under-promising and over-delivering. Rather, with SMART Global stock up nearly 150% in the year leading up to this report, it seems more likely that traders are simply taking some of their profits off the table.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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