Wolfspeed Shares Rebound 5% Amid Chipmaker Volatility Is Value Hiding in Plain Sight

Wondering whether Wolfspeed stock deserves a fresh look, or if it's best left on the sidelines? You are not alone. Investors have been scratching their heads over steep swings in share price, especially given how sharply sentiment has shifted. Over just the past year, the stock has tumbled nearly 90%, even though revenue has grown by a double-digit percentage and net income has improved at an impressive rate. It's a classic case of the market grappling with big promises for the future set against undeniable current challenges.

In the past week alone, the shares have shown some spark, popping up about 5%. Yet, when you zoom out, there's no denying it's been a punishing ride. Part of this volatility is not just about Wolfspeed itself; it also reflects the broader mood for chipmakers, including ongoing supply chain shakeups, shifting global demand, and waves of investor risk-off behavior.

So, is the battered stock a contrarian opportunity, or is the company just catching its breath between rounds of pain? That's where the numbers start to get interesting. Across six major metrics for assessing undervaluation, Wolfspeed scores a 5 out of 6. This is a compelling result that suggests the market might be missing something here.

If you want to cut through the noise and truly understand whether now is the moment to pounce, a close look at Wolfspeed's valuation is essential. Let's dive into the key valuation checks and see how this company stacks up by the book. Stay tuned, as I’ll wrap up with a smarter way to judge value that most investors never consider.

Wolfspeed delivered -89.3% returns over the last year. See how this stacks up to the rest of the Semiconductor industry.

Approach 1: Wolfspeed Cash Flows

A Discounted Cash Flow (DCF) model estimates the value of a company by projecting its future cash flows and discounting them back to today’s value. This gives investors an idea of what the business is intrinsically worth, regardless of current market volatility.

For Wolfspeed, the latest twelve months’ Free Cash Flow (FCF) is about -$2.14 billion, highlighting heavy investment and early-stage growth challenges. However, forecasts anticipate a turnaround. Analysts project FCF will move into positive territory by 2027, reaching $62 million and climbing steadily each year. By 2035, discounted projections suggest Wolfspeed could generate over $205 million in annual FCF.

When these future values are run through a two-stage DCF model, the estimated intrinsic value of the stock is $22.63 per share. Comparing this to the company’s actual share price, the analysis suggests Wolfspeed is 93.9% undervalued. This figure may indicate that the market is overlooking the stock’s future cash-generating potential.

Result: UNDERVALUED

Our DCF analysis suggests Wolfspeed is undervalued by 93.9%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: Wolfspeed Price vs Sales

The Price-to-Sales (P/S) ratio is often a go-to metric for valuing companies that are investing heavily in growth, such as Wolfspeed. Unlike earnings-based multiples, the P/S ratio is not distorted when profits are negative or when a business is reinvesting heavily for future returns. This makes it a reasonable benchmark for newer or rapidly evolving tech firms, where cash flow and earnings can lag far behind top-line momentum.

What counts as a "normal" P/S ratio is shaped by growth expectations and business risk. In high-growth industries, a higher P/S may be justified if the company has strong sales expansion and a clear path to turning those sales into profits. Conversely, if there is uncertainty around profitability or competitive threats, investors usually demand a discount.

Right now, Wolfspeed trades at a P/S ratio of just 0.28x. This is dramatically below the average for semiconductor industry peers, which sits at 3.85x, and even lower than its peer group’s 5.52x average. Meanwhile, Simply Wall St.'s Fair Ratio for Wolfspeed, which factors in growth, margins, industry norms, and risk, is 1.51x. The current P/S is well beneath this fair value benchmark, suggesting the market is pricing in significant risk or skepticism about the company’s growth prospects.

Result: UNDERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Wolfspeed Narrative

Instead of relying only on numbers, Narratives let you tell your story about a company by combining your assumptions, such as future revenue, earnings, and margins, with your estimated fair value for the stock. A Narrative connects your perspective on Wolfspeed’s business to your forecasted results and directly to a target price. This way, you can assess how the current price compares to your fair value estimate.

On the Simply Wall St platform, Narratives are easy to create and share, making it simple to join millions of other investors as you build, compare, and refine your perspectives together. Narratives are kept up to date automatically with every news headline, earnings release, or new financial report, so your decisions are always based on the latest information.

For example, some investors on the platform see Wolfspeed’s fair value at $29 per share by projecting strong revenue growth and wider margins. Others, taking a much more cautious stance, estimate fair value closer to $4 per share due to cost risks and market headwinds. This range highlights how powerful and flexible Narratives can be for clarifying your own investment view.

Do you think there's more to the story for Wolfspeed? Create your own Narrative to let the Community know!

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.

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