|Written by GSCR Staff|
|Friday, 13 December 2013 09:45|
From time to time, conventional wisdom regarding a given stock is that it may be rightly out of favor on a qualitative basis. However, a stock can be still be attractive on a quantitative basis, thus making it a compelling buy. A great example of this phenomenon is Cirrus Logic, Inc. (NASDAQ -CRUS- $19.48).
CRUS designs and manufactures integrated circuits that employ high-performance analog circuits and advanced mixed-signal processing technologies. Its products enable system-level applications in mass storage, audio and precision data conversion. It delivers optimized products for consumer and professional audio, automotive entertainment, and targeted industrial applications, including energy control, energy measurement, light emitting diode (LED) lighting and energy exploration.
The market has been very worried, however, because CRUS’s biggest customer, Apple (NASDAQ - AAPL – $560.54), began to steer a small portion its business elsewhere. Consequently, the stock price has been buffeted as the Street lowered its expectations about future revenues and earnings growth. We perceive that these lower expectations have been largely reflected in CRUS stock price already. EPS estimates for FY15 are now $1.80 as compared with $2.64 for FY14, confirming that this news is already factored into the present valuation.
Despite the Apple issue, CRUS appears to be expanding its customer base as well as nurturing its relationship with Apple. While this effort to diversify its customer base could help CRUS’s long-term prospects, it may not make up for potential losses in revenues from Apple doing business with CRUS competitors over the intermediate term. Still the Street’s diminished view is more likely to be offset by positive surprises until CRUS shows a concrete plan for developing customer relationships in both audio and energy. In any event, the metrics below indicate to us that the worst may be behind this burgeoning semi player.
Check out these figures and metrics:
CRUS is undervalued compared with its industry, its peers, the S&P 500, and its own 5-year averages. At current levels, the stock trades Moreover, the stock carries a Price-to-Book Value ratio of 2.1.
The company has enjoyed tremendous growth since 2009. Its compounded annual growth rates for revenue, operating income, and operating cash flow were 54.2%, 99.2%, and 85.6%, respectively.
CRUS has realized a growing return on equity averaging close to 18% for the last ten years even without much leverage from any long-term liabilities.
Management has achieved an efficient capital spending program that has kept pace with its good cash flow from operations for the last ten years.
CRUS has an excellent balance sheet compared with its market capitalization of $1.2 billion. CRUS has $268 million in cash on hand, free cash flow of $271 million for the trailing twelve months, and no long-term debt.
Management clearly believes that the stock is undervalued. CRUS announced a $200 million share repurchase program in November 2012.
Given the metrics above, we believe that the stock offers wide appreciation potential over the next 3- to 5-years.
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports.
Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com