How Super is Supercomputing Stock Cray Inc (CRAY)? IBM, HPQ & SGI

On Thursday, small cap supercomputer stock Cray Inc (NASDAQ: CRAY) announced that it had been rewarded with one of the largest contracts in its history for $174 million to provide the National Nuclear Security Administration (NNSA) with supercomputers - meaning its worth taking a closer look at the stock along with the performance of large caps like International Business Machines Corp (NYSE: IBM) and Hewlett-Packard Company (NYSE: HPQ) plus small cap Silicon Graphics International Corp (NASDAQ: SGI) who sort of compete with the company in the supercomputing space. I should note that over a year ago, we had Cray Inc in our SmallCap Network Elite Opportunity (SCN EO) trading portfolio when we had suggested it was potentially a good low risk longer-term play.

What is Cray Inc?

Small cap Cray Inc offers a comprehensive portfolio of supercomputers and big data storage and analytics solutions that leverages 40 years of experience in developing and servicing the world's most advanced supercomputers. The company's innovative systems and solutions enable scientists and engineers in industry, academia and government to meet existing and future simulation and analytics challenges.

As for potential competitors or performance benchmarks, International Business Machines Corp and Hewlett-Packard Company need no introduction while Silicon Graphics International Corp is a leader in high performance computing (HPC) and Big Data that is focused on delivering technical computing, Big Data analytics, cloud computing and petascale storage solutions.

What You Need to Know or Be Warned About Cray Inc

Cray Inc has been awarded a $174 million deal to provide the National Nuclear Security Administration (NNSA) with a next generation Cray® XC™ supercomputer and a Cray Sonexion® storage system. The system, named "Trinity" by the NNSA, is a joint effort between the New Mexico Alliance for Computing at Extreme Scale (ACES) at the Los Alamos National Laboratory and Sandia National Laboratories as part of the NNSA Advanced Simulation and Computing Program (ASC). Substantial system acceptances is expected to occur in both late-2015 and 2016.

Back in June, Cray Inc was awarded a $54 million contract to provide the Korea Meteorological Administration (KMA) with two next-generation Cray® XC™ supercomputers and a Cray Sonexion® storage system. That multi-year multi-phase contract is valued at more than $54 million with final system delivery expected to be completed in 2015.

With those recent contract wins in mind, it should be noted that while Cray Inc has reported consistently rising revenues of $525.75M (2013), $421.06M (2012), $236.05M (2011) and $319.39M but more mixed net income of $32.22M (2013), $161.24M (2012), $14.33M (2011) and $15.06M (2010). Moreover and the last time Cray Inc reported earnings, shares fell 11.47% despite better-than-expected results that came with a more cautious 2014 guidance (see Is Big Data and Supercomputer Stock Cray Inc (CRAY) Still a Super Stock? SGI, IBM & HPQ for a lengthy look at what was specifically reported) while back in February, shares surged 39% after solid fourth-quarter results along with encouraging forward guidance were reported. In other words, the supercomputing business can be volatile and dependent on a few big sales.

Otherwise, it should be noted that Cray Inc has a trailing P/E of 47.28 and a forward P/E of 31.49 according to the latest Yahoo! Finance statistics – meaning its not exactly a bargain.

Share Performance: Cray Inc vs. IBM, HPQ & SGI 

On Thursday, small cap Cray Inc rose 15.69% to $31.49 (CRAY has a 52 week trading range of $20.75 to $42.09 a share) for a market cap of $1.28 billion plus the stock is up 13.3% since the start of the year, up 54.5% over the past year and up 305.3% over the past five years. Here is a look at the performance of Cray Inc verses that of International Business Machines Corp, Hewlett-Packard Company and Silicon Graphics International Corp:

As you can see from the above chart, Cray Inc has been a real outperformer for the past two years while International Business Machines Corp has been a steady to flat performer, Hewlett-Packard Company is now on a steady upswing and Silicon Graphics International Corp has bounced around a bit.

Finally, here is a look at the latest technical charts for all four supercomputing players:

The Bottom Line. Supercomputing stock Cray Inc can be a good stock for investors who understand the risk associated with owning a stock that is dependent on a few big homeruns. However, new investors may want to be cautious given its current valuation.

SmallCap Network Elite Opportunity (SCN EO) previously had an open position in CRAY. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.