CREE | Near Term Weakness An Opportunity

10/17/17 11:56PM EDT

CREE's guidance weakness was driven by:

  • continuing market weakness in commercial lighting
  • Project delays due to hurricanes
  • Preexisting warranty issues
  • Soft backlog

But the company finally has catalyst for change. For example, GAAP gross margins for CREE have been in the high 20's to mid-40's % range in recent years, but the previous management did nothing to fix the inefficient OPEX structure of the company (below). With new management, it is all on the table.

CREE | Near Term Weakness An Opportunity - 10 17 2017 11 44 38 PM 

What is the stock worth? Cree is an innovation-centric company, and the company has dynamic opportunities in the near future to open new markets and applications. And Cree finally has a catalyst in place that can drive better profit and cash flow harvest alongside those opportunities. The near-term cyclical weakness that continues to limit upside in results is a welcome chance for us all to complete the work and build long term positions with a great entry point. At 17x EV-to-LTM FCF, is it worth waiting?

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