Cree, Inc. (CREE), General Electric Company (GE): This Stock’s Recent Drop Is a Buying Opportunity

Cree is a fraction of General Electric Company (NYSE:GE) in terms of size, but its pure-play nature has helped it deliver a cutting-edge product at a lower price. Moreover, Cree recently released an upgrade kit that would enable consumers to move from fluorescent fixtures to LEDs for under $100.

Similarly, its recently released XSPR Series Street Light, which sells for $99, is aimed at replacing sodium street lights and is also 65% more energy efficient. Apart from these moves, Cree is also focused on reducing costs, driven by a mix of higher LED fixture revenue and production efficiencies in the manufacture of its low-cost LED bulb.

According to the forecast for the current quarter, revenue from LED fixtures and LED bulbs is expected to remain constant. But investors should be focused on the long-term prospects of the company and the industry. There will be margin issues as Cree looks to capture the market and prices its products aggressively.

Its trailing P/E of 77 might seem very high. But earnings grew 52% in the previous quarter, and there’s a huge opportunity ahead in the LED lighting industry. So, a premium valuation shouldn’t scare away investors.

Needs to stay ahead
But where there’s opportunity, there are competitors. Cree needs to stay ahead of the likes of General Electric Company (NYSE:GE) and Koninklijke Philips NV (ADR) (NYSE:PHG) in the LED market. While General Electric Company (NYSE:GE)’s bulb might be selling at a higher cost, the sheer size of the company can help it attain economies of scale if it elects to produce LEDs on a large scale, thereby reducing costs.

Similarly, Philips recently took the wraps off a prototype LED light, which it says is the world’s most energy-efficient light. Philips intends to launch this product in 2015 and expects the price to be competitive with current LEDs. The company also promises that the light will consume half the energy of the leading LEDs. By that time, Cree would need to up its game to fight these behemoths.

The bottom line
Even after the drop, Cree is up more than 70% this year. The recent crash looks like a good opportunity for investors as Cree’s product developments advance and the opportunity ahead in the LED market remains enticing.

The article This Stock’s Recent Drop Is a Buying Opportunity originally appeared on Fool.com and is written by Harsh Chauhan.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. 

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