Key Points
Wolfspeed's stock plummeted nearly 19% after a meteoric 500% post-bankruptcy rally.
Wolfspeed expects to reduce its debt by 70% and interest payments by 60%, providing some relief as it reorganizes.
10 stocks we like better than Wolfspeed ›
Shares of Wolfspeed (NYSE: WOLF) are sinking on Thursday, down 19.9% as of 2:26 p.m. ET. The fall comes as the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) rose 0.3% and 0.1%, respectively.
The sharp drop doesn't appear to be motivated by any specific news; rather, investors are shedding shares after a major run-up over the past two weeks.
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Wolfspeed files for bankruptcy protection
Late last month, the embattled chipmaker filed for Chapter 11 bankruptcy and will continue to operate through the process. When it emerges from bankruptcy, Wolfspeed expects to have reduced its debt by 70% and its interest payments by 60%, giving the company some breathing room. From the announcement through Tuesday of this week, the stock skyrocketed more than 500%. It's more than natural for it to retreat after a run like that.
Image source: Getty Images.
Wolfspeed also announced earlier this week that, effective Sept. 1, Gregor van Issum will join the company as its new CFO. Van Issum brings significant experience with strategic financing and transformation in the tech sector, which the company says aligns with its turnaround strategy.
Rough waters are ahead
While the news has been mostly positive for the past few weeks, I don't think it is enough. There are still too many hurdles ahead to recommend the stock, especially larger trends in its revenue -- it's shrinking -- as the electric vehicle industry it sells to sees its own issues. I believe this latest rally has more to do with hype than reality.
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Johnny Rice 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.
Disclaimer: For information purposes only. Past performance is not indicative of future results.
