Why is the Cree stock falling today?

Cree stocks (CREE) fell by nearly 9% today.

Why is the stock Cree falling?

The company announced Tuesday its earnings for the fourth quarter of fiscal 2019 after trading hours. Cree recorded sales of $ 251.2 million in the fourth quarter, down 5% year-on-year (year-over-year). Adjusted EPS for the Company decreased 21.4% year-over-year to $ 0.11 in the fourth quarter.

Cree reported a turnover of $ 265.8 million and EPS of $ 0.11 in the fourth quarter of 2018. Analysts expect the company to earn $ 248.9 million in revenue and an EPS in the fourth quarter of 2019. Therefore, why did the Cree share fall despite a beat profit?

Forecasts did not live up to analysts' estimates

The Cree are expecting revenues of between $ 237 and $ 243 million in the first quarter of fiscal year 2020. EPS will likely be between -0.07 and -0.03 $. Expectations are lower than analysts' estimates. Analysts expected revenue of $ 259.2 million and EPS of $ 0.15.

Cree said a revenue of $ 408.27 million and earnings per share of $ 0.22 in the first quarter of 2019. The company expects a 41% drop in sales which will affect the bottom line.

Cree said that Huawei's ban and the weak LED market will have an impact on its short-term sales. Cree Chief Executive Gregg Lowe said, "We are pleased with our quarterly performance as non-GAAP earnings per share were at the top of our range, despite a challenging operating environment. If Huawei's ban and weak light-emitting diode market will continue to affect the industry in the short term, our long-term prospects remain unchanged – there is an important opportunity to help customers to switch silicon carbide silicon solutions for their next generation applications. "

Is Cree undervalued after withdrawal?

The Cree share is trading at a futures PE ratio of 63.2 times, which is high relative to its earnings growth forecast of 15% in 2020. Semiconductor weakness will likely continue for some time. Trade war concerns continue to affect inventories. The slowdown in the Chinese economy will also hurt the company's sales. China accounts for 26% of the Cree's total revenues.

Investors should be cautious with the Cree and keep an eye on the stock. The stock will be a good choice after the end of the slowdown. Prior to Q4 results, analysts had an average target price of $ 65.88. The estimates will be lower because of the weak outlook of the company.

Although the stock has gained 23% since the beginning of the year, it is still trading 23% below its peak of $ 69.21 in 52 weeks.