Thesis
Among the companies that has significant future expectations for growth and outstanding “green” potential is Cree Inc. (CREE). The company is the leader in the LED light industry. LED lights are a more efficient lighting source that uses 10-15% of the energy that incandescent lightbulbs use. The company saw significant growth in 2010 thus far and hit its all-time high in the low 80s. The stock since has returned to reality and now faces the question of where now.
The LED light phenomenon has been prompted by the continue growth of green technology and efficiency among tough economic times. Lights are used in automobiles, street lights, home lighting, schools, and more. Cree has been able to etch itself as the leader in the industry due to being the first company as a major player and its highly efficient bulbs. The company continues to produce new LED lights as competitors (GE, Phillips) try to catch up with them.
The company has a number of positive aspects to their investment capabilities. For one, the company is the leader in cost efficiency. The company can produce LED lights cheaper than any of its competitors. The market for LEDs is growing by 50% per year. With an industry that is large and growing, this gives Cree and its competitors a large pie to split between still a small number of players. Additionally, with the industry still young, maintaining significant cash flow for research and development is crucial. The company has over $1 billion in cash on hand, which is outstanding for a young, budding company. This will
help the company increase its manufacturing capacity, distribution, and research.
In the latest quarter, however, the company for the first time lowered its future guidance. While the company is still expecting large growth, this growth has been baked into the numbers. Therefore, more significant growth numbers must be met in order for the stock to continue to rise. That sort of obtainment may be difficult, however. The company’s main growth has come from the LED-lighted television sets and electronics. That industry has been hit hard by the recession with most families taking big-ticket items off the purchase list. Therefore, the company may struggle to wow in growth until that industry can return to demand. Additionally, the company continues to feel pressure from giants like General Electric and Phillips. These two will continue to cut into the pie, even if it is…
