Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Cree Lights Up With Profits

"Maybe it just sags
like a heavy load.

Or does it explode?"
-- From "A Dream Deferred," by Langston Hughes, 1951

The Cree (Nasdaq: CREE  ) dream is on hold for a while. Share prices for the LED lighting guru have tripled over the last year, but last night's third-quarter earnings report turned out the lights. Cree is down by more than 7% today after issuing strong revenue guidance but disappointing earnings projections.

That brings the stock back to levels not seen since all of three weeks ago. In other words, today's slack is not a terrible calamity for Cree shareholders.

The sell-off seems to come from somewhat disappointing forward guidance, because there was absolutely nothing wrong with the third quarter. Sales gained 78% year over year to land at $234 million, while non-GAAP earnings more than tripled to $0.47 per share. For those of you keeping score at home, $51.3 million in net income works out to a very impressive net margin of 22%. It's been four years since the company coasted at this level with any regularity. All of that happened with Cree's revenue being less than half of what it is now, so the company has never enjoyed profits of this magnitude.

Cree easily beat its own guidance and Wall Street estimates, and fourth-quarter sales will balloon again as Cree has more orders than it can fill, and it is working feverishly to expand manufacturing capacity. The company will triple its production of power LED components from last New Year's to the next, and keeps beating revenue estimates because the fresh facilities are ramping up ahead of schedule.

It's no surprise that demand for Cree's LED lights is strong. Incandescent light bulbs are terribly inefficient and outdated, and LED is a front-runner in the race to replace them all. We're talking about a lighting product market of more than $20 billion annually -- plus at least another $20 for the fixtures in which you mount them. Cree participates in both of these markets -- and unlike competitors like Siemens (NYSE: SI  ) , Philips (NYSE: PHG  ) , and General Electric (NYSE: GE  ) , Cree won't cannibalize an existing light bulb business as LED sales hit the mainstream: LED is all this company does. LED lighting is further ahead in its commercialization than the OLED variety espoused by Universal Display (Nasdaq: PANL  ) and others, and a first-mover advantage is always valuable.

Given the massive opportunity ahead of Cree, I would not be surprised to see its stock chart resume the steady climb we've seen lately. Did I miss anything important in this deferred growth story? Let me know in the comments below.

Fool contributor Anders Bylund owns shares in Universal Display, but he holds no other position in any of the companies discussed here. When National Poetry Month ends, he might explode. Universal Display is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2010, at 4:07 PM, MellowGuy1 wrote:

    I am long CREE, but I would think they need to have more production plant to meet demand. So, how are they going to finance that new plant?

  • Report this Comment On April 21, 2010, at 4:29 PM, decoupodge wrote:

    Typical Cree fashion, good earning report, then the stock tanks. (trading window manipulation???)

  • Report this Comment On April 21, 2010, at 4:40 PM, deprofessional wrote:

    Lets see - with no debt and lots of cash on hand - I don't see how that's a problem.

  • Report this Comment On April 21, 2010, at 10:59 PM, orangemanny wrote:

    if you're after Incandescent replacements...put your money on halogen...LED's are a long way out....not competitive from a cost perspective...and they wouldn't be viable if not for government subsidies.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1159938, ~/Articles/ArticleHandler.aspx, 10/26/2016 3:34:36 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,209.50 40.23 0.22%
S&P 500 2,140.67 -2.49 -0.12%
NASD 5,251.84 -31.56 -0.60%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 3:18 PM
CREE $22.75 Down -0.08 -0.35%
Cree CAPS Rating: ***
GE $28.91 Up +0.26 +0.91%
General Electric CAPS Rating: ****
OLED $49.47 Down -0.23 -0.46%
Universal Display CAPS Rating: ****
PHG $30.13 Up +0.50 +1.67%
Koninklijke Philip… CAPS Rating: ****
SIEGY $115.93 Down -0.14 -0.12%
Siemens AG (ADR) CAPS Rating: ****