Cree, Inc. (CREE) shares fell more than 2.5% during Monday's session after Morgan Stanley downgraded the stock amid valuation concerns.

Key Takeaways

  • Cree shares fell more than 2.5% during Monday‚Äôs session after Morgan Stanley downgraded the stock on valuation concerns.
  • Analyst Craig Hattenbach believes that the stock's recent rally has created a high bar to exceed over the coming quarters despite its strong position.
  • The stock could make a near-term double top pattern, which would point to a period of consolidation following its meteoric rise.

Analyst Craig Hattenbach downgraded the stock from Overweight to Equal Weight with a $93.00 price target. While he believes that the company remains in a strong position, he has a hard time seeing further upside given the large gains and multiple expansion. Hattenbach believes that the bar has been raised on what Cree needs to deliver over the coming quarters.

A multiple measures some aspect of a company's financial well being, determined by dividing one metric by another metric. Metrics are quantitative tools that measure a company's performance. The metric in the numerator is typically larger than the one in the denominator.

Last month, JPMorgan upgraded Cree stock from Neutral to Overweight with a $90.00 price target, saying that its Wolfspeed products were in "pole position" in the power devices market. The analyst also noted that investor interest was growing due to rising attention for renewables and electrification over the past several months.

Chart showing the share price performance of Cree, Inc. (CREE)
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From a technical standpoint, the stock fell after retesting its highs, creating a possible bearish double top pattern. The relative strength index (RSI) remains near overbought levels with a reading of 68.90, while the moving average convergence divergence (MACD) appears to be losing steam. These indicators point to possible further consolidation over the coming sessions.

Traders should watch for a breakdown from reaction lows of around $87.50 to confirm the double top pattern, which could lead to a move toward trendline support and the 50-day moving average at $73.20. On the other hand, the company's solid fundamentals could point to a lesser consolidation near Fibonacci support near $85.15 or a retest of its reaction highs.

The Bottom Line

Cree shares moved lower after Morgan Stanley downgraded the stock on valuation concerns. While the company remains strong on a fundamental level, the analyst points to a higher bar that resulting from multiple expansion and a strong run-up in price. Technical indicators seem to confirm the possibility of some consolidation over the coming sessions.

The author holds no position in the stock(s) mentioned except through passively managed index funds.