Wolfspeed (WOLF -1.89%) stock has risen roughly 250% since the beginning of July on hopes that current shareholders could still come out ahead as the company moves forward with a major restructuring initiative. The silicon carbide (SiC) semiconductor specialist submitted preliminary filings for Chapter 11 bankruptcy protections at the end of June, and its share price actually managed to see incredible gains following what seems like bad news.
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Despite its recent gains, Wolfspeed stock is actually down roughly 98% over the last five years.A $10,000 investment in the stock made five years ago would now only be worth approximately $194. Read on for a closer look at the factors that have driven the company's dramatic valuation contraction and the key factors that will shape forward performance.
How did Wolfspeed stock get here -- and what comes next?
Wolfspeed's sales, earnings, and factory scaling targets wound up falling far short of previous forecasts set by both the company and analysts. Growth for the electric vehicle (EV) market came in significantly below the levels that the company had anticipated. As a result, Wolfspeed wound up closing multiple factories and scaling back on previously planned expansion initiatives.
In conjunction with scaling momentum failing to materialize, the company has continued to post very weak gross margins. Making matters worse, funds that the company had been set to receive through the CHIPS Act have been in limbo as a result of the change in presidential administrations this year -- and may not arrive.
The CHIPS Act funding may or may not eventually come through, but Wolfspeed stock looks like a very risky holding for shareholders right now. As part of the company's bankruptcy proceedings and restructuring, the ownership of key assets will be transferred to wipe out debt -- and a new corporate entity will be created. Current shareholders of the company's stock will only receive between 3% and 5% of the value of the new business, and that could mean shares will see significant downward moves from the current level.
