Why Wolfspeed Stock Is Plummeting Today

Key Points

• Wolfspeed stock is seeing sell-offs Wednesday after posting huge gains across Monday's and Tuesday's trading.

• The rally for the stock stemmed from the company naming its next CFO, but the gains were likely out of step with the significance of the appointment.

• Wolfspeed is going through bankruptcy and restructuring proceedings, and the stock could fall much further.

• 10 stocks we like better than Wolfspeed ›

On the heels of a recent rally, Wolfspeed (NYSE: WOLF) stock is getting hit with a round of big sell-offs in Wednesday's trading. The silicon-carbide specialist's share price was down 13.7% as of 12:10 p.m. ET amid the backdrop of a 0.2% gain for the S&P 500 (SNPINDEX: ^GSPC) and a 0.5% gain for the Nasdaq Composite (NASDAQINDEX: ^IXIC). The stock had been down as much as 23% earlier in the session.

While there doesn't appear to be any fresh news driving the big valuation pullback today, it's not surprising to see investors moving to take profits on the heels of the company's recent valuation run-up. The stock saw massive gains after it was announced that Gregor van Issum had been selected as the company's next CFO, and the rally may have been significantly overdone.

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Wolfspeed stock sinks as investors move to lock in recent gains

Wolfspeed saw its stock more than double Monday after Gregor van Issum was named the company's next CFO, and gains for its share price continued in yesterday's trading. Van Issum will be helping to lead the company through its Chapter 11 bankruptcy and restructuring, and news of his appointment corresponded with explosive gains for the stock. Van Issum's background suggests that he's a good fit to handle the company's financial restructuring, but the gains for the stock following news that he would step into the role in September appeared to be significantly out of step with the significance of the news.

What's next for Wolfspeed?

Through its Chapter 11 bankruptcy and restructuring, the ownership of Wolfspeed's assets will be shifted in order to reduce debt and restore value to its creditors. As a result, a new company will be created -- and current holders of the company's common stock will only receive between a 3% and 5% stake in the new corporation. Additionally, there's a risk that Wolfspeed stock will soon be delisted from the New York Stock Exchange as a result of its bankruptcy filing.

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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.