Shares of LED lighting expert Cree roared on Wednesday, surging 20% overnight. The company crushed Wall Street's earnings estimates with an $0.18 per share bottom-line performance. Earnings rose 80% year-over-year on 14% higher sales. It doesn't take much of a top-line boost to make a dramatic difference to bottom-line income when the cost structure is pretty much fixed.
If you'll allow me a sidebar here, do keep this phenomenon in mind when Netflix reports earnings later tonight. That's another business with the majority of its operating costs set in stone, giving tons of earnings leverage to relatively small revenue changes.
Back to the main attraction. Cree's second quarter saw improved sales in both the LED components and lighting fixture divisions. The next quarter is tracking right in line with this report's boisterous growth trends, and CEO Chuck Swoboda likes the far future even better. In the longer term, "we see opportunities to move the market even faster than what has been experienced to date," he said.
LED lights are going mainstream, and fast. A quick trip to your favorite home improvement store will confirm how quickly traditional light bulbs are going obsolete. Those twisty fluorescent lamps have taken an early lead in the race to replace traditional bulbs, but LED options are not hard to find anymore. They're also more efficient and will last longer, so I expect LED lamps to eventually crush the fluorescent craze. Demand must increase quickly enough to make it economically sensible to ramp up production, and it's a slippery slope down that virtuous cycle of production costs once you get started.
Cree appears to have found the start of that hill already. General Electric and Philips are accelerating the revolution with LED products of their own, but the new lights won't matter as much to their investors. Philips and GE are multinational conglomerates with dozens of major product lines, from electronics and light bulbs to nuclear reactors and locomotives, while Cree is laser-focused on just the LED market. If and when this sector takes off like a rocket, only one of these three stocks will really follow suit.
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The article Has This Growth Stock Finally Turned the Corner? originally appeared on Fool.com.
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