Why Super Micro Computer stock is crashing today

Super microcomputer (SMCI -32.41%) The stock came under pressure in Wednesday trading after news that the company's accounting firm resigned. The server specialist's stock price fell 31.6% as of 12:30 p.m. ET.

Supermicro today published a regulatory filing with the Securities and Exchange Commission (SEC) indicating that Ernst & Young (EY) has resigned as its auditor. In its resignation letter, EY said it was stepping down from the position because it could not “rely on the representations of management and the audit committee.”

Things have gotten a lot worse for Supermicro investors

News of EY's resignation has sparked new concerns about Supermicro's accounting. In August, Hindenburg Research released a short-seller report that claimed the tech company was a serial offender when it came to poor accounting and financial practices.

The next day, Supermicro announced that it would delay filing its annual 10-K report – but management said it did not expect any material restatements to previous results. The company had previously paid a $17.5 million fine to the SEC to resolve accounting issues.

What's next for Supermicro shares?

Supermicro saw its sales and profits soar last year thanks to artificial intelligence (AI) trends, but concerns about accounting practices and other possible irregularities have cast a dark shadow over the stock. Today's big selloffs have pushed the stock down about 72% from the peak reached earlier this year, but the company's share price is still up about 18% year-to-date. Although the company reported strong earnings growth, it is now valued at just 10 times this year's expected earnings.

Super Micro Computer stock may seem quite cheap based on price-to-earnings ratios and other metrics, but uncertainty surrounding accounting issues and other potential regulatory issues means trying to value the company based on traditional means , probably not wise.

EY's resignation as the company's auditor is a major red flag and raises the possibility that the stock could be removed from the company S&P 500 added to the index or removed from the list entirely. While it's possible that Supermicro will emerge from these challenges and manage to allay investor concerns, the company still has a lot to prove.

Until then, the prevailing market sentiment will likely reflect the “where there is smoke, there is fire” mindset. Investors will get a closer look when the technology specialist reports its quarterly results and hosts a conference call on November 5th.