After the Pop: Is Cirrus Logic Still a Buy?

The following video is part of our "Motley Fool Conversations" series, in which senior technology analyst Eric Bleeker and chief technology officer Jeremy Phillips discuss topics across the investing world.

Cirrus Logic has been on a furious run so far in 2012. Year to date, the company has seen a surge of 66%, leaving the returns of the red-hot Nasdaq in the dust. However, Cirrus Logic now trades at a P/E north of 20, which is a healthy premium to the semiconductor industry and a high level for a company that sees 63% of sales from its largest customer, Apple. Eric has recommended investors buy Cirrus Logic on several occasions, but with the company now double his initial buy recommendation, he dives into whether investors should buy more Cirrus or look for better opportunities.

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Eric Bleeker owns shares of Cirrus Logic. Jeremy Phillips has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Cirrus Logic. Motley Fool newsletter services recommend Apple and Nuance Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On May 17, 2012, at 2:58 PM, LordFoolman wrote:

    I'm surprised you guys forgot to mention one reason a higher PE is justified. You keep mentioning the PE without mentioning what supports the higher PE. You need to also consider future earnings growth rate. You don't simply value a company's PE in isolation. The company's stock price, if you're using the conventional discount model of valuing the company, is the discounted value (with the appropriate Weighted Avg Cost of Capital-WACC) of the future cash flows to the firm. And if the forecasted growth rate is high (or higher than the market), this will, a purely mechanical mathematical exercise, elevate the firm's present value - which is the "P" in PE. Cirrus is set to experience sharply higher revenues in the coming quarters as mentioned by Jason (CEO). A big driver for this is continued income from Apple products and other tablets, but new front here is the chips for controllable dimmers in the burgeoning LED market. It waits to be seen whether the higher revenues necessarily translates to higher earnings, but given their forecast for steady or rising margins, this is a relatively safe bet.

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