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Spokane, Washington  Est. May 19, 1883

Motley Fool: Serving up a promising tech company

Super Micro Computer is about to take steps to allow it to produce high volumes of cloud servers at lower costs, and it’s beginning to make servers for the 5G telecom market.  (David Paul Morris/Bloomberg)

If you’re in the market for a smallish tech company with lots of potential and a reasonable price, check out Super Micro Computer (Nasdaq: SMCI), which makes customized servers for large data center clients. Its business was disrupted by COVID-19, and last quarter’s revenue fell 5% year over year. The company is starting to recover from the slowdown, though.

Super Micro is about to ramp up sales beyond its original customer base. It’s about to complete a build-out of its Taiwan campus, which will allow it to produce high volumes of cloud servers at lower costs. In addition, it’s beginning to make servers for the 5G telecom market.

Super Micro’s revenue growth stagnated over the past couple of years due to an accounting scandal, but the company cleaned up its books and was relisted on the Nasdaq stock exchange one year ago. Now, CEO Charles Liang is confident the company can grow again, and aims to triple revenue in the coming years, returning to an annual growth rate near 20%.

Along with those rosy growth prospects, Super Micro’s price-to-earnings, or P/E, ratio was recently a reasonable 21. The company also sports $270 million in net cash, and just authorized a $200 million share repurchase program – so management is taking advantage while the stock appears to be on sale.

Ask the Fool

Q: What’s a dividend? – N.R., Glens Falls, New York

A: When a company pays out part of its earnings to shareholders, that’s a dividend.

Imagine that Monster Gene Inc. (ticker: FSTEIN) earns $4 per share and pays out $1 per share annually – $0.25 per quarter. So someone owning, say, 100 shares will get $25 each quarter and $100 over the year. Healthy and growing dividend-paying companies tend to increase their payouts over time, too, so in the future, that shareholder could collect $150 and then $200 and more each year. The share price of the stock is likely to increase over time, too.

A related term you’ll hear often is the “dividend yield.” This is a company’s annual dividend amount divided by its current share price. So if Monster Gene was priced at $20 per share, divide $1 by $20 to get 0.05, or a 5% yield.

Companies can use their earnings in other ways than by paying dividends. They may, for instance, pay down debt or buy back shares of their stock. Companies trying to grow rapidly frequently won’t pay dividends, as they prefer to spend all available funds to further their growth – perhaps by hiring more people or building more factories.

Q: Is it better to sell a stock that has lost value or one that’s gained value? – P.T., Bellevue, Washington

A: How a stock has done in the past doesn’t matter that much. You should care most about how it will perform in the future. It can be helpful to try to rank your holdings by how confident you are in their financial health and growth potential – and then, if you need to sell shares, start with the ones at the bottom.

My dumbest investment

My dumbest investment move was selling my entire position in in 2015 because we had another kid and I needed to buy a family car. At the time, it had already been such a great investment that it didn’t pain me too much to sell. But I wish I’d held onto it! – J.I., online

The Fool responds: Your actions – and your regret – are reasonable. We invest in stocks to build wealth to reach various financial goals, such as college and retirement. Ideally, we should find great companies and invest in them for the long run. (Alternatively, we might just invest in a low-fee, broad-market index fund, such as one that tracks the S&P 500 or one that tracks the total world stock market.) As long as those companies are performing well and still have plenty of growth potential, hang on – even if they double or triple – because over a decade or more, some companies can rise in value tenfold or twentyfold. stock has increased in value at least fivefold from mid-2015, so you did lose out on a lot of further growth. But you also cashed out with a solid gain, and that money helped you afford a car you needed. What you might do next time is to buy a less costly car, so that you can keep more money in your portfolio.