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Audio chip expert Cirrus Logic (Nasdaq: CRUS ) is hitting all the right notes today.
The stock is up more than 16% after a stellar earnings report: GAAP earnings doubled to $0.34 per diluted share on 47% higher sales, both year over year. The company is milking its catbird seat inside a bunch of Apple (Nasdaq: AAPL ) products for all they're worth, duplicating Cupertino's success while also using that account as a springboard to further design wins.
But what's most impressive about Cirrus is not any single heart-stopping fact in this report. Instead, I'm taken aback by the consistent high quality of the business improvements.
Taking the just-reported third quarter into account, this was the fourth consecutive improvement in Cirrus' gross margins on a rolling 12-month basis, the sixth unbroken step up in net margins, and the eighth quarter in a row of improved return on equity.
Meanwhile, a streak of annualized revenue growth topping 45% extended to five quarters, and Cirrus now has $185 million of debt-free cash on its balance sheet.
CEO Jason Rhode noted that audio chips provide plenty of fuel for the business today, but that greenfield opportunities in power management chips also play a large part in his future plans. In other words, media players and smartphones may represent an outsized share of sales now, but tomorrow's big wins may come from smart meters, garage door openers, and hybrid car engines.
In the meantime, the company is increasing its research budget significantly to keep the fires hot under all this growth, and also returns value to shareholders by buying back shares at a rapid clip. All of this is music to a Foolishly trained investor's ears, which explains why fellow Fool Eric Bleeker put real money into Cirrus three months ago. The stock may be risky, resting as heavily on Apple as it does, but Cirrus has smart management and lots of opportunity left to explore.
The road ahead is fraught with dangers: Rival audio chip designers Wolfson Microelectronics and Texas Instruments (NYSE: TXN ) would love to kick Cirrus out of iPads and iPhones, and it's no easy task to maintain this level of excellent execution for years on end.
But the stock is hardly expensive, and Cirrus still flies largely below Wall Street's radar as only four analyst firms follow the company. This could be your best shot to crush the market with an unloved stock and a fantastic company.