Do you own a stake in industrial technology outfit Wolfspeed (WOLF +0.00%)? Maybe it's on your watch list? Whatever the case, it's a compelling but complicated investment prospect. The company's tech is critical to several industries' futures, but its declining revenue and lack of profitability are concerning.
Neither or those numbers is the one that's most important to current and would-be Wolfspeed shareholders, however.
Wolfspeed is evolving at the right time
If you're not familiar, Wolfspeed makes silicon carbide. This improvement on ordinary silicon makes it useful for high-voltage and high-heat applications like electric vehicles, power-hungry data centers, HVAC systems, and utility-scale renewable energy facilities, just to name a few.
Problem? Manufacturing silicon carbide at scale isn't cheap or easy. That's why Wolfspeed's revenue and net income have been hot and cold for some time now.
WOLF Revenue (TTM) data by YCharts
There's clear long-term potential though, even if demand has softened in the short run. Global Market Insights says the business is set to grow at an annualized pace of 34.5% through 2034.
Wolfspeed is positioning for this future. Namely, the company's been investing heavily since 2020 to expand its manufacturing capacity. Although this has eaten into net income in the meantime, the reduction of these capital expenditures expected over the next couple of years should push profits back in a positive direction again, boosted by subsequent revenue growth.
For investors keeping tabs on this company, however, the far more important figure to watch is Wolfspeed's backlog. As of the end of its most recently reported quarter, its backlog of design wins stood at over $12 billion, up from a little over $11 billion just a quarter earlier, and less than $1 billion just four years ago.
For perspective, last fiscal year's total top line was $807 million.
NYSE: WOLF
Key Data Points
A good barometer
This backlog isn't necessarily guaranteed revenue, to be clear. Orders can be cancelled. Still, the trajectory of Wolfspeed's design win backlog is a reasonably good indication of where the company's headed, laying the groundwork for an eventual swing back to profitability.
