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.
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?
