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Why Shares of Cree, Inc. Sank 16% Today

By Travis Hoium – Aug 17, 2016 at 6:39AM

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A decent earnings report was overshadowed by guidance from Cree, Inc. today.

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What: Shares of LED maker Cree, Inc. (WOLF -2.62%) fell as much as 16.3% in trading Wednesday after the company reported fiscal-fourth-quarter results. At 11:50 a.m. EDT shares were still down 14.4% on the day.

So what: Quarterly revenue rose 2% to $382 million, and net loss fell 88% to $10.6 million, or $0.11 per share. Adjusted earnings, which pull out one-time items, were $0.19 per share, a penny below analyst expectations.  

What really disappointed investors was the revenue from discontinued operations guidance of $310 million to $330 million with non-GAAP net income from continuing operations expected to be $0.06 to $0.11 per share. Analysts were expecting revenue of $398 million and earnings of $0.22 per share, which is where the disappointment comes in.  

Now what: The growing LED business is hard to gauge from an investment perspective because falling costs can offset volume growth and prices can change rapidly. I suggest long-term investors watch for the volume changes and gross margins going forward. That'll tell if product is in demand from customers, which will eventually lead to growing profitability.

The fiscal-fourth-quarter report isn't something to be excited about, that's for sure, but in a volatile business, I wouldn't be worried about one earnings miss, either.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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