Is Cirrus Logic Still a Buy After All That's Happened?

When Cirrus Logic (NASDAQ: CRUS  ) announced its latest earnings two and a half weeks ago, investors burned the stock almost 14% in one day. Many speculated as to why this was the case, but it still didn't add up.

Even our own Evan Niu, in a recent segment on Tech Teardown, was perplexed by the overt hostility directed toward Cirrus Logic, despite it posting a beat on almost every meaningful metric. In fact, most bearish arguments leaned on the idea that margins were compressing, but this was something investors should have already known since Cirrus Logic's CEO disclosed this earlier in the year. So what happened?

Apple concerns
Well, about a week following Cirrus Logic's earnings release, its stock crept back into favor, eventually regaining about half of its one-day sell-off. Unfortunately, that was just in time for Barclay's to reiterate its "underweight" rating, a reiteration based upon an analyst's note in their research report.

Importantly, that research report mentioned how Cirrus Logic had lost the audio amplifier socket in Apple's (NASDAQ: AAPL  ) iPad Air; this resulted in yet another one-day sell-off of Cirrus Logic this past Monday. However, this should not have been news.

Those who follow Cirrus Logic were already aware of this since a teardown by Chipworks had been published a week before highlighting how Cirrus audio amplifiers had been replaced by Maxim. And while this, of course, should worry investors, should it really alter any long-term strategy in Cirrus Logic? The short answer: no.

Importantly, Cirrus had "only" lost the audio amplifier socket in the latest iPad Air. This represents, perhaps, a $20 million loss annually -- small potatoes for a company with over $800 million in revenue per year. As patient investors now understand, that's likely the only thing they'll be losing in the near future.

Where Cirrus really stands with Apple
Not only does Apple still utilize Cirrus Logic's audio codec in its iSuite of products, it still uses Cirrus audio amplifiers in the iPad mini Retina display -- which many predict will be the hotter selling iPad in the end -- as shown in an iFixit teardown recently. Of important note, the pair of audio amplifiers found in the previous iPad mini were low-power, class-D digital audio amplifiers from Cirrus Logic.

Source: iFixit

So, for the long-term investor, Cirrus Logic certainly represents an attractive stock to look further into, despite it deriving nearly 80% of its revenue from Apple. Even with the recent audio amplifier loss, the majority of Cirrus Logic's Apple-based revenue remains safe, which makes sense since Cirrus Logic actually raised guidance for the next quarter.

Additionally, with a P/E below 10, Cirrus Logic certainly appears deeply discounted and relatively cheap compared to its peers. Considering this is a company that has zero debt, churns out cash, reinvests in itself via R&D, and acquiring the best human capital to help it differentiate its products, Cirrus Logic looks and feels like a winner, still.

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