Light-emitting diode manufacturer Cree, Inc. (NASDAQ:CREE) cratered earlier this month after the company’s first-quarter guidance came in below consensus estimates. The company has been on a stellar run so far this year, but lost 20% of its market capitalization in a single day, even though it witnessed terrific growth in its earnings and revenue.
However, Cree, Inc. (NASDAQ:CREE) is a pure-play LED lighting company, and so, the recent drop looks like a good opportunity for investors to add to their positions. According to a McKinsey report, the worldwide LED lighting market will be worth $94 billion by 2020, making for 60% of the overall lighting market . And being a specialized player in this industry, Cree, Inc. (NASDAQ:CREE) is in a good position to benefit from this opportunity and has done well so far.
A minor hiccup
Since it is a fast-growing company, Cree, Inc. (NASDAQ:CREE) is expected to have fluctuating margins as it invests in growth. The important point to consider right now is revenue growth, and the ascending revenue curve suggests that Cree, Inc. (NASDAQ:CREE)’s products are finding takers.
The recent revenue guidance of $380 million to $400 million — against the consensus estimate of $398.4 million — might have been a dampener on the stock price, but the long run still looks promising .
Cree, Inc. (NASDAQ:CREE)’s backlog for the ongoing quarter is better than the preceding one. Going forward, management sees the shift to LED lighting as a strong tailwind and is ramping up sales of its LED bulb. Sales of its lighting products had increased 48% in the previous fiscal year to $500 million as LED adoption improves and the company expects this trend to continue in the future .
Cree has been undercutting bigger players such as General Electric Company (NYSE:GE) with its 40-watt replacement LED light bulb, which sells for under $10 . In comparison, General Electric Company (NYSE:GE)’s 40-watt replacement bulb sells at a much higher price point of around $25 on Amazon. Moreover, while General Electric Company (NYSE:GE)’s light delivers the same 450 lumens as Cree’s offering, it consumes 50% more electricity.