Shares of Cree, Inc. (NASDAQ:CREE) are already trading 85% higher this year, but investors can still expect very attractive long-term gains from this stock based on the company’s new technology and ongoing earnings growth.
It’s not an overly dramatic statement to say that Cree, Inc. (NASDAQ:CREE) is literally reinventing the light bulb. The company specializes in highly efficient LED lighting and has recently come up with a new bulb that is transforming the consumer lighting industry.
With cutting edge technology and a tremendous distribution partner, Cree, Inc. (NASDAQ:CREE)’s earnings should increase dramatically over the next several years along with the price of its stock.
Finally! A no-compromise light bulb
If you’ve tried to change out traditional incandescent light bulbs in your home with new low-energy replacements, you know that the aesthetics of these lights can often be very disappointing. Compact fluorescent bulbs often give out harsh white light, wile other LED lamps can give off an unpleasant blue glow.
While these bulbs may do the job of cutting down on energy costs, the low quality of lighting has made it difficult for most consumers to make the switch.
The new line of bulbs addresses many of the reservations that consumers have with new lighting technologies:
The light gives off a similar light to incandescent bulbs
The light is mercury free
The light is designed to burn for 25,000 hours (10 times a traditional bulb)
The light comes with a limited 10-year warranty
The new bulbs are reasonably priced at $12.97 for a 60 watt replacement and $9.97 for a 40 watt replacement. Of course the bulbs cost about ten times more than a traditional incandescent bulb, but the true cost of lighting for a consumer comes from the energy costs rather than the actual bulb cost.
Cree, Inc. (NASDAQ:CREE) estimates that by replacing just the five most used lights with the new LED bulbs, consumers can save an average of $61 per year.
Picking just the right distribution partner
Often, technology companies are able to design strong products, but then, totally miss out on the profit potential because they fail to effectively market the product to consumers.
Cree, on the other hand, has secured a tremendous distribution partner through an exclusive agreement with The Home Depot, Inc. (NYSE:HD).
The Home Depot, Inc. (NYSE:HD) will be a tremendous outlet for Cree, Inc. (NASDAQ:CREE) to mass market its new technology. On a retail level, Home Depot operates 2,257 stores in the U.S. as well as Canada and Mexico.
Not only does it have a tremendous reach for retail customers, but it also markets products to consumers who are actively thinking about home improvement solutions. So, the choice to use The Home Depot, Inc. (NYSE:HD) as Cree’s distribution partner should be the most effective way to market the light bulbs to individuals.
On a professional level, the Home Depot has a very healthy relationship with blue chip building companies, along with a myriad of independent contractors. So, Cree’s partnership with the Home Depot should also put their bulbs in the perfect spot to be introduced into new homes as well as remodeling projects.
Healthy financials and accelerating growth
Cree has a very stable financial foundation with total cash of $937 million and zero debt. This means that the company can continue to invest in research and development without capital constraints — while simultaneously increasing profits for shareholders.
I’m particularly impressed with the way the company manages inventory. At this point, the company has only 82 days of inventory on its books. This is an important metric for an innovative company, because as new technology advances are made, old inventory can become obsolete.
Since Cree, Inc. (NASDAQ:CREE) keeps inventory at a very reasonable level, it has much less risk of being forced to write down the value of its inventory — thus leading to higher confidence for future profits.
Speaking of profits, the last two quarters have seen a sharp increase in profits while revenue levels hit new highs.
As the company begins to capture profits from its new revolutionary line of light bulbs, earnings growth is expected to accelerate.
The problems with education have gotten so out of hand that not only has Elon Musk taken his kids out of school, but he has started a radical new one, Asta Nova.
But the cost of Musk’s virtual school is far too expensive for regular folks. That’s why EdTech platforms are booming these days. In September 2020, the Global Education Sector has evolved to $7 trillion, and Digital Learning has grown to $160 billion, up from nothing 25 years prior. (ref 11) It is expected to witness a compound annual growth rate (CAGR) of 19.9% from 2021 to 2028. (Ref 28) And with homeschooling trend skyrocketed to their highest-ever level of 11.1% in the U.S (Ref 9), this trend is likely to stay!
Duolingo blasted into the EdTech market with an absolutely massive IPO earlier this year. With a reported 40 million monthly users and 500 million downloads (Ref 10), the company is making a lot of money in the EdTech space.
“With the recent global changes, 1.6 billion learners were thrown into the deep end of the online learning pool and told to sink or swim. The catalyst of having 20% of the world’s population becoming online learnersovernight has ushered in a new era, The Dawn of the Age of Digital Learning.” (Ref 11)