Predicting Wolfspeed's Position in the Next 12 Months
Wolfspeed Exits Chapter 11 Bankruptcy, Offering New Opportunities for Investors
Semiconductor company Wolfspeed, formerly known as Cree, is making headlines as it emerges from Chapter 11 bankruptcy protection. The company, which specialises in silicon carbide technology, has been undergoing reorganisation since June 2020.
As of June 29, 2020, Wolfspeed's long-term debt stood at $6.54 billion. However, under the Chapter 11 reorganization, the debt balance has dropped to a more manageable $2 billion, and cash equivalents have increased to $1.3 billion. This restructuring is expected to significantly reduce Wolfspeed's interest expenses, setting the stage for future profitability.
The reorganization will also result in a new stock issuance. Holders of Wolfspeed's convertible debt notes will become the majority owners of the new stock, while owners of the current Wolfspeed stock will receive a much smaller stake. If the market cap of the Wolfspeed successor stays in the $450 million range, about $18 million of that equity will be split between all the existing shares.
Investors should exercise caution when considering investing in the company's long-term business prospects. The Motley Fool Stock Advisor analyst team did not include Wolfspeed in their list of the 10 best stocks for investors to buy now. However, it's important to note that the total average return of Stock Advisor is 1,056%, which is a market-crushing outperformance compared to 188% for the S&P 500.
The current stock is expected to lose nearly all of its value in the next few weeks, as it will be cancelled and replaced with new stock under a different symbol within the next two weeks. This was not the case for one investor who purchased the stock during the darkest days of the COVID-19 pandemic. The investor, who owned the stock under the name Cree in April 2020, sold it at a 156% gain.
Wolfspeed's unique advantages in silicon carbide make it particularly suitable for applications with extremely high power draws and silicon-melting temperatures. The company's technology is expected to drive its success in the future, as it continues to innovate and grow.
In conclusion, while the immediate future may be uncertain for Wolfspeed, the company's emergence from bankruptcy protection offers a new beginning and potential for growth. Investors may want to wait until October to consider investing in the company's long-term business prospects.
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