There are numerous flaws.
Doubling capacity does not cost $50k. Gross Profits are 42%. As the business grows rapidly, R&D and SGA grow slowly. The company has operating leverage, which is far more important than financial leverage. Cree could double manufacturing capacity for less than $50k since not all of PP&E is used for manufacturing plants.
I have no idea of how you came up with the $30k revenue.
Future demand is not guaranteed at today's price levels. If they don't decline year after year after year, Cree will not be successful. Cree's business strategy is to reduce the cost of HB-LEDs to increase the market size for them. Other companies are trying to do the same thing, but currently Cree has a clear lead.
Financial strategy (borrow money or sell shares) is important, but not as important as producing highly profitable products.
Cree has shown over the last few years that they have the manufacturing expertise to make products with novel compound semiconductors (SiC, GaN), while reducing the cost their manufacturing costs, increasing yields, etc.
If you want to estimate Cree's share price using DCF, you'll need to estimate their performance over the next 30 years. For that you'll need to make assumptions for revenue growth rate, gross profit margins, overhead, taxes, etc. I did the calculations for the next several years using 80% as the growth rate. I used the forward 12 months P/E ratio as a crude estimate for DCF.
By the way, Cree is a manufacturing company, not a service organization. |
