Passing this along . . .
"August 6, 2000
The News & Observer
Investing in Cree? Hang on
By Dan Barkin; Staff Writer
Page: E1
If you own Cree stock, you may have made a lot of money - on paper. Then again, you may have lost a lot. It just depends on which day you check the price.
Cree makes a bunch of products, but perhaps the most interesting is the light-emitting diode, or LED. The Durham company uses silicon-carbide technology to make semiconductors such as blue and green LEDs.
If you watched the Republican Convention last week - OK, I know that a couple of you did - you saw Cree's handiwork. You may have noticed that behind George W. on Thursday night were three large video screens. They were big monitors so convention delegates could see the keynote speakers from the cheap seats. In those screens were 1.2 million Cree LEDs, of the blue and green variety. These LEDs, with red LEDs from another vendor, were incorporated into the screens by the manufacturer, a company called Lighthouse Technologies, which has its U.S. office in Cary.
(Note: The LEDs aren't carted away from Cree's factory in a tractor-trailer. Thousands of the diodes can be harvested from a two-inch silicon-carbide wafer.)
As the Cree LEDs were forming GOP images, Cree's stock was doing what it periodically does, cratering. On March 6, Cree shares hit $202. On Wednesday, they closed at $90.375.
Yeah, what's new? The one constant about Cree is volatility. It has a beta of nearly 2, which means it is twice as volatile as the Standard & Poor's 500.
In 1998, adjusted for stock splits, Cree fell to $5.25 and rose as high as $24.125. Last year, it sank to $15.125 but went as high as $89.25. This year, it has been as low as $66.625 and as high as $202.
If you bought 100 shares of Cree five years ago and have held on to it, you have made about $39,000 on a $4,000 investment. If you bought 100 shares at Cree's peak March 6, you've lost $10,000, or about half your investment.
Cree catches the fancy of Wall Street, but then investors get spooked and bail.
Why? Risk. If you want to invest in Cree, you have to have a strong constitution. Cree doesn't hide these risks. They are articulated in Securities and Exchange Commission filings.
For example, most of Cree's sales come from a very small number of customers. One customer accounted for 37 percent of Cree's revenue last year.
Cree also is growing very rapidly to meet strong demand, and managing growth can be daunting. There is no assurance that Cree can manage its phenomenal growth well or that it can meet its customers' timetables.
Remember a few weeks back when I talked about the PEG ratio, which is the price-earnings ratio divided by projected earnings growth? Cree is at about 1.5, which makes it potentially more attractive than Cisco, which has a PEG of nearly 4.
If you are willing to take the risk, there may be great returns. On Thursday, an analyst for Banc of America Securities set a target price of $300 for Cree. Three C-notes for a stock that closed Friday at $102. The lesson with Cree seems to be that if you buy it, you have to hang on for the bumpy ride."
Augustus |
