Why Shares of Cree, Inc. Popped 21% Today

Markets Motley Fool

What happened

Continue Reading Below

Shares of LED maker Cree, Inc. (NASDAQ: CREE) jumped as much as 20.9% in trading Wednesday after the company reported fiscal first-quarter 2018 results. The company posted a surprise profit and said its business outlook may be getting better as well. At 3:55 p.m. EDT, shares were still up 16% for the day.

So what

Revenue fell 3% from a year ago to $360.4 million, but Cree's net income for the quarter was $4 million, or $0.04 per share on an adjusted basis. Analysts were expecting $361 million in revenue, so the top line was a bit disappointing -- but they also expected a loss of $0.03 per share, and the company easily beat that.

In the fiscal second quarter, management expects revenue of $340 million to $360 million with adjusted earnings of $0.01 to $0.04 per share. The company also said it will invest in Wolfspeed's electronics products after a sale of that subsidiary failed to go through.

Now what

Continue Reading Below

Cree leapt over a low bar for investors in the fiscal first quarter, but that was enough to send shares higher today. There may have also been some low expectations, as adverse weather conditions reduced lighting investment in some of the United States' biggest markets, a headwind that won't last forever.

What will be more important than this earnings beat for long-term investors: a turnaround in revenue, and continuous improvement on the bottom line. Cree seems to take one step forward and two steps back from time to time, which is why I won't be jumping on a single earnings beat. I want to see a positive trend before jumping into this stock.

10 stocks we like better than Cree
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Cree wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of October 9, 2017

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.