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Smart Global (NASDAQ: SGH) stock surged Wednesday. The company’s share price ended the daily session up 26.3%, according to data from S&P Global Market Intelligence.

After the market closed on July 9, Smart Global published results for the third quarter of its current fiscal year — a period that wrapped up on May 31. While the company’s sales for the period fell slightly short of Wall Street’s target, earnings came in significantly better than anticipated. Guidance also looked promising.

Smart stock surges on improving margins and sales momentum

Smart’s fiscal Q3 revenue fell roughly 12.7% year over year to approximately $300.6 million. While Wall Street had anticipated a double-digit sales decline, revenue fell short of the average analyst target by roughly $1 million. However, investors hardly seem concerned with the moderate revenue shortfall.

Smart Global posted non-GAAP (adjusted) earnings of $0.37 per share — far better than the per-share earnings of $0.31 called for by the average analyst estimate. The company’s adjusted gross margin for the quarter came in at 32.3%, topping the 31.5% margin recorded in the prior-year quarter.

Despite the sales dropoff, Smart appears to be managing scale efficiently in terms of margins. Even better, it looks like the performance could be poised to keep improving in the near term.

Smart Global may have reached a turning point

For the fourth quarter of its current fiscal year, Smart Global’s midpoint guidance calls for sales of roughly $325 million. If the company were to hit that target, it would represent a roughly 2.6% sales increase over the $316.7 million in revenue it posted in fiscal Q4 last year.

In addition to projections that the business will return to posting annual sales growth in the current quarter, Smart appears to be managing expenses efficiently. If these trends hold, Smart could be poised to deliver some strong earnings growth.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Smart Global. The Motley Fool has a disclosure policy.

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