Wolfspeed (NYSE:WOLF shareholders incur further losses as stock declines 20% this week, taking three-year losses to 79%

Every investor on earth makes bad calls sometimes. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Wolfspeed, Inc. (NYSE:WOLF) investors who have held the stock for three years as it declined a whopping 79%. That would certainly shake our confidence in the decision to own the stock. And the ride hasn't got any smoother in recent times over the last year, with the price 70% lower in that time. The falls have accelerated recently, with the share price down 24% in the last three months.

With the stock having lost 20% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Wolfspeed

Wolfspeed isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Over three years, Wolfspeed grew revenue at 23% per year. That is faster than most pre-profit companies. So on the face of it we're really surprised to see the share price down 21% a year in the same time period. You'd want to take a close look at the balance sheet, as well as the losses. Sometimes fast revenue growth doesn't lead to profits. If the company is low on cash, it may have to raise capital soon.

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

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. So it makes a lot of sense to check out what analysts think Wolfspeed will earn in the future (free profit forecasts).

A Different Perspective

While the broader market gained around 19% in the last year, Wolfspeed shareholders lost 70%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Wolfspeed better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Wolfspeed you should know about.

Wolfspeed is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com