WOLF Stock Looks Risky Amid Mounting Challenges: Time to Step Aside?

Wolfspeed WOLF shares have declined 13.8% since reporting third-quarter fiscal 2025 results on May 8. The company’s shares have declined 42.6% year to date, sharply underperforming the Zacks Computer and Technology sector and the Semiconductor – Discretes industry’s fall of 24.3% and 2.4%, respectively. This underperformance highlights mounting challenges, including revenue declines, persistent net losses and rising debt burdens.

WOLF has underperformed its competitors, including SolarEdge Technologies SEDG, CommScope COMM and Himax Technologies HIMX.

Over the same time frame, shares of SolarEdge Technologies, CommScope and Himax Technologies have gained 32.9%, 11.2% and 5.7%, respectively. SolarEdge leads the smart energy sector, CommScope holds strong in connectivity and Himax Technologies thrives in display chips.

Debt Pressure Weighs Heavily on WOLF Stock

Wolfspeed faces significant debt obligations, including a $575-million payment due next year in terms of convertible bonds. The company's total debt has escalated to $6.5 billion. To avoid potential bankruptcy, the company is negotiating a $600-million refinancing package with creditors to restructure looming liabilities and secure critical working capital.

Wolfspeed Price and Consensus

Wolfspeed price-consensus-chart | Wolfspeed Quote

Despite holding $1.3 billion in cash and anticipating more than $600 million in tax refunds through the CHIPS Act, Wolfspeed's financial stability remains uncertain. The company has issued warnings about its ability to continue as a going concern, citing challenges in refinancing efforts and delays in expected federal funding. The recent 13.8% plunge in its stock price underscores investor apprehension regarding its financial health.

Revenue Decline & High Underutilization Costs Impact WOLF

The company reported fiscal third-quarter revenues of $185 million, representing a 7.6% year-over-year decline and falling 0.48% short of the Zacks Consensus Estimate. The drop in revenues was primarily driven by a slowdown in the Materials segment, which generated $78 million, reflecting weakened demand from material customers across the device market.

Wolfspeed's fiscal third-quarter results revealed a significant financial strain due to the underutilization costs of $26.3 million. The costs, primarily linked to the ramp-up phase of the Mohawk Valley Fab, affected the company's gross margin.

The financial impacts of these underutilization costs underscore the difficulties Wolfspeed is facing in achieving operational efficiency during its expansion phase. Although the Mohawk Valley fab delivered $78 million in revenues, up from $28 million the previous year, the associated costs of underutilization have raised concerns about the company's path to profitability.

WOLF’s Earnings & Revenue Estimates Trend Down

The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $756.74 million, indicating a 6.25% decrease from the figure reported in the year-ago quarter.

The consensus mark for the fiscal 2025 bottom line is pegged at a loss of $3.34 per share, narrowed by 5 cents over the past 30 days. The estimate suggests a sharp decline from the year-ago quarter's reported loss of $2.59 per share.

WOLF’s Zacks Rank

Wolfspeed currently has a Zacks Rank #4 (Sell), which implies that investors should stay away from the stock for the time being.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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