Wolfspeed (WOLF -8.79%) stock is seeing big sell-offs in Tuesday’s trading. The company’s share price was down 8.8% as of 2:30 p.m. ET and had been off as much as 11.2% earlier in the day’s trading.
Wolfspeed stock is losing ground today in conjunction with a new report from Axios detailing recent struggles at the business. The company’s share price is likely also facing pressure due to news that the silicon-carbide specialist is being sued for securities fraud. Wolfspeed stock is now down 79% this year.
Wolfspeed’s challenges are under the microscope
Axios published a new report today covering challenges at Wolfspeed and investor dissatisfaction. The report chronicled the company’s shift to focusing on silicon-carbide chips, devices, and materials and how the initiative had led to soaring debt. The report also noted that Wolfspeed had repeatedly issued downward guidance revisions, and that factory utilization at existing plants and the cancellation of expansions had caused many investors to lose faith in the business. Gregg Lowe resigned as the company’s CEO last month, and the business is reducing its employee count by roughly 20%.
In addition to Axios highlighting issues at Wolfspeed, law firm Block & Leviton announced that it had filed a securities lawsuit against the company and some of its executives. The suit alleges that Wolfspeed and certain executives had materially misled investors about the state of the business and its near-term trajectory. In particular, the suit points to Wolfspeed lowering its guidance between 30% and 50% from an initial forecast that suggested that a 20% utilization of the company’s Mohawk Valley fabrication plant would produce $100 million in revenue.
What’s next for Wolfspeed?
Wolfspeed’s silicon-carbide technologies are generally highly regarded and could see long-term demand tailwinds in conjunction with the evolution of the electric vehicle (EV) industry. On the other hand, growth for the EV market has been slowing — and many analysts now expect that adoption will precede at a slower pace than previously anticipated.
Wolfspeed posted a net loss of $282.2 million last quarter and ended the period with $1.7 billion in cash and equivalents against roughly $3.1 billion in debt. With production scaling and factory utilization falling behind the company’s original plans, it appears unlikely that the business will shift into profitability anytime soon. On the other hand, some analysts and investors think that the company could be a potential acquisition target.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Wolfspeed. The Motley Fool has a disclosure policy.
