Long-established in the Semiconductors industry, Wolfspeed Inc (WOLF, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 4.92%, juxtaposed with a three-month change of -20.97%. Fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Wolfspeed Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 2/10
- Growth rank: 3/10
- GF Value rank: 4/10
- Momentum rank: 4/10
Based on the above method, GuruFocus assigned Wolfspeed Inc the GF Score of 57 out of 100, which signals poor future outperformance potential.
Wolfspeed Inc: A Snapshot of the Company's Business
Wolfspeed Inc, with a market cap of $5.2 billion, is involved in the manufacturing of wide bandgap semiconductors. It is focused on silicon carbide and gallium nitride materials and devices for power and radio-frequency (RF) applications. The company serves applications such as transportation, power supplies, inverters, and wireless systems. Geographically, it derives a majority of revenue from Europe and also has a presence in the United States; China; Japan; South Korea, and other countries. The company's sales stand at $921.9 million, but it has an operating margin of -38.21%, indicating challenges in profitability.
Financial Strength Breakdown
Wolfspeed Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0 positions it worse than 0% of 646 companies in the Semiconductors industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.77, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.71 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 2.58, which is worse than 97.84% of 788 companies in the Semiconductors industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations.
Profitability Breakdown
Wolfspeed Inc's low Profitability rank can also raise warning signals. Wolfspeed Inc's Operating Margin has declined over the past five years ((-379,119.00%)), as shown by the following data: 2019: -11.50; 2020: -40.30; 2021: -41.34; 2022: -31.39; 2023: -38.22. Additionally, Wolfspeed Inc's Gross Margin has also declined over the past five years, as evidenced by the data: 2019: 45.28; 2020: 33.67; 2021: 31.32; 2022: 33.41; 2023: 30.32. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where Wolfspeed Inc seems to falter, as evidenced by the company's low Growth rank. Lastly, Wolfspeed Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While Wolfspeed Inc has a strong reputation in the Semiconductors industry, its current financial health and future prospects indicate potential challenges that may limit its outperformance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
