Wolfspeed Is Skyrocketing Today -- Is the Stock a Buy Right Now?

Key Points

• Meme-stock trades have recently become popular again, and Wolfspeed's valuation has benefited from the dynamic.

• The company's share price could also be getting a boost from news about a class action lawsuit against the company.

• Wolfspeed could continue to benefit from meme-stock momentum, but the company's Chapter 11 bankruptcy and restructuring make the stock a very risky play.

• 10 stocks we like better than Wolfspeed ›

Wolfspeed (NYSE: WOLF) stock is exploding higher in Wednesday's trading. The silicon-carbide specialist's share price was up 24.3% as of 2 p.m. ET and had been up as much as 43.4% earlier in the session.

There doesn't appear to be any major business-specific news pushing the company's valuation higher today. The company is moving forward with a Chapter 11 bankruptcy and restructuring, but its stock has recently seen big gains in conjunction with speculative bets and meme-stock trading.

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Today's explosive rally could also be tangentially connected to a Bloomberg Law report published on Monday stating that shareholders involved in a class action lawsuit against the company were seeking to nullify liability shields for previous company officials. Some investors may be betting that developments on the legal front will lead to current shareholders receiving a more favorable outcome when the company completes its restructuring and a new corporate entity is formed.

Is Wolfspeed stock a buy right now?

Wolfspeed's rally could continue in the near term, but the stock looks like an incredibly risky buy right now. The big rally for the company's share price appears to have been largely driven by the recent uptick in popularity for meme-stock trades. Developments related to shareholder class action lawsuits are unlikely to result in big wins for the broader shareholder base when the company's bankruptcy proceedings and restructuring are completed.

Wolfspeed is on track to transfer ownership of key assets in order to wipe out debt and allow the business to continue functioning under a new corporate entity. As part of the restructuring, current shareholders of the company's common stock will only receive between 3% and 5% of the value of the new company.

Additionally, the company's preliminary bankruptcy protection filings mean that the silicon-carbide specialist's stock is at high risk of being delisted from the New York Stock Exchange (NYSE) in the near future. Between restructuring terms that look unlikely to preserve shareholder value and the possibility of the stock soon being delisted, Wolfspeed's outlook suggests the stock should be a no-go for all but the most risk-tolerant investors right now.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Wolfspeed. The Motley Fool has a disclosure policy.