Is Cirrus Logic's Roller-Coaster Ride Worth It?

The past month's topsy-turvy stock price of Cirrus Logic (Nasdaq: CRUS  ) is nothing new. Longtime shareholders scoff at the notion that a 20% drop in share price here, or a 15% jump there, is anything to be concerned about.

As for the 11% pop since Monday? Just another typical couple of days in the life of a Cirrus shareholder. But why all the price movement? And what, if anything, can Cirrus do about its volatile stock going forward to become a legitimate, long-term alternative for a Fool portfolio?

The latest
As Apple (Nasdaq: AAPL  ) goes, so goes Cirrus. Apple's foray into China, introducing its iPhone to the masses across the sea, appeared to be a positive for all its suppliers and that includes Cirrus. But initial news of less-than-ideal sales results put a damper on Apple, and by extension Cirrus. Recent downgrades from analysts -- downgrades of Apple's price target, that is -- hit Cirrus, too.

As too often happens, turns out the initial reports of Apple's Chinese "debacle" weren't that bad after all; a couple million in units sold over the first weekend isn't bad. Cirrus investors cheered, bumping its share price up 11% by yesterday's close. As one of the primary suppliers for Apple's line of iEverything's, Cirrus once again found itself on the receiving end of an Apple share-price uptick.

Alternatives
Though the vast majority of Cirrus revenues are driven by processing unit sales to Apple for all those iGoodies, Cirrus does have other products  to offer. The automotive and consumer audio market (beyond Apple products) in general has been less than ideal of late, but Cirrus operates in both areas. Lighting, energy, and defense are also alternative revenue opportunities that Cirrus dabbles in.

Energy, in particular, would appear to be an area that Cirrus can explore for additional revenue opportunities. If it ramps up its energy business revenues -- equal to a paltry 8% of its $193.8 million last quarter -- it could eliminate at least some of its erratic trading activity.

A glance at Cirrus' latest fiscal Q2 2013 ending Sept. 29 tells investors everything they need to know. Though revenue shot through the roof and gross margins (a concern for many shareholders) remained at a respectable 52%, its share price fell through the floor. Why? Sure, (unfounded) margin concerns had a hand in it, but its lack of diversified revenue streams took a lot of the blame.

Compared to key competitors, Cirrus is at reasonable levels, at least on a trailing basis. At 17 times earnings, Cirrus is now on the low end of the sector. By comparison, competitors Analog Devices (Nasdaq: ADI  ) and Texas Instruments (Nasdaq: TXN  ) are each trading at 20 times past earnings. Going forward, again based primarily on expectations for Apple, Cirrus trades at an attractive seven times future earnings. As for the balance sheet, though the company only boasts $134 million in cash and equivalents, zero debt makes its balance sheet tolerable.

Cirrus' margins -- the fear of many lately -- now compare favorably with both Texas Instruments and Analog Devices, along with the rest of the industry. But that's likely a function of its depressed share price rather than any consistent, overriding value theme. Comparisons to industry competitors are tough to gauge, simply because Cirrus' stock price, and relative financials, change on what seem like an hourly basis.

Cirrus' volatile price movements are a day trader's dream, but as mid- to long-term Foolish investors, why put yourself through the anguish? Two reasons: (1) betting on a long, sustained run from Apple, and (2) taking advantage of Cirrus' lower barrier to entry -- a stock price of $28 vs. Apple's $530. No matter your reason, if Cirrus Logic is on your investment radar, you better enjoy thrill rides.


 
 

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