Penguin Solutions: A Name Change Won't Help

(8min)

Summary

  • Penguin Solutions' name change reflects a focus on AI infrastructure, but underlying fundamentals remain weak with inconsistent revenue growth and significant debt.
  • Despite a projected 15% revenue growth in fiscal 2025, the business's cyclical nature and competitive market raise concerns about sustainable growth.
  • Valuation at 9x forward non-GAAP EPS appears cheap, but negative free cash flow and high net debt make it a risky investment.
  • The AI opportunity is enticing, but financial instability and poor execution make Penguin Solutions a value trap; I recommend selling at $17 per share.
  • Looking for a helping hand in the market? Members of Deep Value Returns get exclusive ideas and guidance to navigate any climate. Learn More »

adelia penguins (Pygoscelis adeliae ) portrait in Antarctica

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Investment Thesis

Smart Global changed its name to Penguin Solutions (NASDAQ:PENG). I believe the reason for changing the company's name had to do with its determination to double down on its Intelligent Platform Solutions

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This article was written by

Michael Wiggins De Oliveira is an inflection investor. This means buying into cheap companies at the moment when their narrative is changing and the business is on a path toward becoming significantly more profitable over the next year.

With a focus on tech and “the Great Energy Transition (including uranium)”, Michael runs a concentrated portfolio with approximately 15 to 20 stocks and an average holding period of 18 months.

Through his 10+ years analyzing countless companies, Michael has accumulated outstanding professional experience in tech and energy and a following of over 40K on Seeking Alpha.

Michael is the leader of the investing group

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Seeking FCF is an associate of Michael Wiggins De Oliveira

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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