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Does Cree's (NASDAQ:CREE) Share Price Gain of 75% Match Its Business Performance?

Simply Wall St

It might be of some concern to shareholders to see the Cree, Inc. (NASDAQ:CREE) share price down 26% in the last month. But that doesn't change the fact that the returns over the last three years have been pleasing. To wit, the share price did better than an index fund, climbing 75% during that period.

See our latest analysis for Cree

Cree isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last 3 years Cree saw its revenue shrink by 4.2% per year. Despite the lack of revenue growth, the stock has returned 21%, compound, over three years. If the company is cutting costs profitability could be on the horizon, but the revenue decline is a prima facie concern.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NasdaqGS:CREE Income Statement, September 6th 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Cree in this interactive graph of future profit estimates.

A Different Perspective

Investors in Cree had a tough year, with a total loss of 3.0%, against a market gain of about 3.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 0.2% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Cree by clicking this link.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.