Penguin Solutions Stock To $13?

Penguin Solutions (PENG), a company that provides AI and high-performance computing (HPC) infrastructures at scale, has seen its stock fall 14% during the past day and is currently trading at $18.58. Our multi-factor assessment suggests that it may be time to sell PENG stock. We have, overall, a pessimistic view of the stock, and a price of $13 may not be out of reach. We believe there are a few things to fear in PENG stock given its overall Weak operating performance and financial condition. This isn’t appropriately reflected in the stock’s Moderate valuation which is why we think it is Unattractive.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $983 Mil in market cap, Penguin Solutions provides memory-focused enterprise solutions worldwide, designing and developing advanced technologies with a global presence in the US, China, and Europe since 1988.

[1] Valuation Looks Moderate

This table highlights how PENG is valued vs broader market. For more details see: PENG Valuation Ratios

[2] Growth Is Moderate

• Penguin Solutions has seen its top line grow at an average rate of 1.6% over the last 3 years
• Its revenues have grown 11% from $1.2 Bil to $1.4 Bil in the last 12 months
• Also, its quarterly revenues grew 0.6% to $343 Mil in the most recent quarter from $341 Mil a year ago.

This table highlights how PENG is growing vs broader market. For more details see: PENG Revenue Comparison

[3] Profitability Appears Very Weak

• PENG last 12 month operating income was $80 Mil representing operating margin of 5.8%
• With cash flow margin of 9.2%, it generated nearly $126 Mil in operating cash flow over this period
• For the same period, PENG generated nearly $25 Mil in net income, suggesting net margin of about 1.9%

This table highlights how PENG profitability vs broader market. For more details see: PENG Operating Income Comparison

[4] Financial Stability Looks Strong

• PENG Debt was $524 Mil at the end of the most recent quarter, while its current Market Cap is $983 Mil. This implies Debt-to-Equity Ratio of 53.2%
• PENG Cash (including cash equivalents) makes up $461 Mil of $1.6 Bil in total Assets. This yields a Cash-to-Assets Ratio of 28.9%

[5] Downturn Resilience Is Very Weak

PENG has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• PENG stock fell 65.4% from a high of $36.50 on 3 January 2022 to $12.63 on 20 October 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $29.35 on 15 July 2024 , and currently trades at $18.58

2020 Covid Pandemic

• PENG stock fell 55.4% from a high of $19.47 on 2 January 2020 to $8.68 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 5 January 2021

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read PENG Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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