WolfspeedWOLF87,73 $
Today we have a speculative idea: take shares in Wolfspeed's semiconductor business (NYSE: WOLF), in order to capitalize on their rebound after the fall.
Growth potential and validity: 20% behind 15 Months; 36% behind 3 of the year; 50% behind 5 years.
Why stocks can go up: because they fell hard, and the topic of chips will attract interest to this company.
How do we act: we take shares now by 93,60 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
The company used to be called Cree - just then we had a successful investment idea for it. In it, we analyzed in detail her business., so we won't repeat ourselves here..
The company is engaged in the design and manufacture of chips and components for complex electronics.. The only difference since then is that, that the company sold the LED business and is now engaged in pure semiconductor components for power supply, electric cars, solar energy and telecommunications.
The company's loss should also be taken into account..
Arguments in favor of the company
Fell down. Since November 2021, the company's shares have fallen significantly: then they cost 141,87 $, and now - 93,60 $. So we can pick up stocks in anticipation of a rebound.
A bright future in every sense. Can take a long time to explain, why green energy and electric cars are unsustainable without government subsidies. But deny, that the process of their implementation is practically unstoppable, it is forbidden: governments around the world spend enormous efforts to support these sectors. Therefore, you can be sure of 99% therein, that the implementation of all these undertakings will continue and will become more intense every year.
And that means, that Wolfspeed can expect an increase in demand for its products. well, unless conditions suddenly change, but that's just not very likely.
Normal report. The company released a report for 3 fiscal 2022 quarter. Basically, he was good enough, albeit somewhat disappointed investors, expecting a little more revenue.
Main, that the company’s marginality increased as a percentage of revenue compared to the same period in 2021: gross margin increased from 32 to 34%, and the operating room - with a minus 45 to minus 33%. This is a good sign.
Logistics. Almost all of the company's production is "closer to the body" - in the USA. This does not eliminate all supply problems in 100%, but it makes it a little easier.
It can also lead to the company receiving certain political bonuses and preferences.: Today in Washington, the topic is “it is necessary to produce chips in the USA!» is very popular and Wolfspeed is in line with party politics here. For what it can be rewarded as pumping capitalization by investors, affiliated with American elites, and facilitating loans.
The company could be bought by Elon Musk.. In its category, WolfSpeed leads the way and makes really cool and efficient components.. Its portfolio contains a little less than 3 thousand patents in the relevant field., And, frankly,, R&D is largely responsible for Wolfspeed's unprofitability: they account for almost a third of the company's revenue. Another third of the revenue is eaten by the sales department.
It seems to me, if Wolfspeed buys some automaker with wide pockets, then when optimizing the enterprise and cutting off the excess, Wolfspeed can be useful. By the way,, the same Elon Musk may become a likely buyer of the company: buying and integrating Wolfspeed into Tesla makes more sense, than a deal with Twitter.
But in general, it can be any automaker. The logistics crisis hits the electric car industry hard: you need a lot of complex components and they are brought from all over the world, so the integration of Wolfspeed into the supply chain of a large automaker is a very likely outcome for the company. well, or at least it will be bought by some manufacturer of semiconductor devices such as Infineon "specially for the development of the electric car direction".
In absolute terms, Wolfspeed is not very expensive.: its capitalization is slightly less than $12 billion. In the context of the corporate sector's huge spending on semiconductor equipment, its purchase will not look like something out of the ordinary..
What can get in the way
Price. For a company with operating margin minus 62% from revenue Wolfspeed is obscenely expensive - 18.31 annual revenue. And this is even taking into account the strong fall in stocks.. So they will be volatile.
Concentration. The company's three customers account for a disproportionate amount of sales: to the electronics manufacturer STMicroelectronics - 18%, to the Arrow reseller - 13% and Sumitomo Holding - 10%. Relationship change with one of them could hurt Wolfspeed reporting.
No time for losses. Higher rates and more expensive loans are hitting Wolfspeed from multiple angles.
Firstly, this makes it difficult for it to obtain loans to finance its core operations—which, as we already understood, very voracious in terms of investments.
This will encourage it to issue new shares, what quotes can suffer from, if there is not enough demand for new securities. Well, just more expensive loans slightly increase the likelihood of a company going bankrupt..
Secondly, in terms of rising cost of loans, its quotes will suffer: investors will generally try to steer clear of unprofitable companies.
What's the bottom line?
We take shares now by 93,60 $. And then there are three options for the development of events:
- wait for the stock to rise 113 $. Think, we will reach this level in the next 15 Months;
- keep up the level 128 $. Here it is better to focus on 3 of the year;
- hold until the stock returns to the level 141 $. Here you should count on 5 years of waiting.
The idea is related to volatility, so don't touch those stocks, if you're not ready for it, that they will be shaken.
