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Being the supplier of audio chips for the full range of mobile products by Apple (Nasdaq: AAPL ) has its perks. For one, second-quarter sales jumped 81% year over year and 23% from the previous quarter to $100.6 million. While that was well within management's guidance range between $98 million and $106 million, Wall Street analysts were hoping for more. Likewise, non-GAAP earnings quadrupled year over year to $0.40 per share but still failed to live up to analyst expectations. Cirrus doesn't do earnings guidance, by the way.
Sometimes it doesn't really matter how hard you knock the cover off the ball if the market expected you to absolutely obliterate it. In that light, I don't see today's fall from grace as a sign of weakness; rather, it's a pullback to less insane assumptions and a terrific place to start looking at this stock.
Apple accounts for 44% of Cirrus' revenue by way of those mobile audio chips, but that's changing. CEO Jason Rhode told me all about how the plan always was to land a marquee customer -- and Apple certainly qualifies for that title -- and then build on that relationship to land more contracts. To that end, Cirrus is in talks with several other smartphone designers. Though we don't have any names yet, I would not be surprised at all to see Cirrus chips in coming handsets from rising stars such as HTC and Motorola (NYSE: MOT ) -- after all, Motorola's claim to fame used to be top-notch sound quality in phones like the RAZR and ROKR, so a return to premium sound chips would make perfect sense.
Third-quarter sales are trending lower because chips destined for this holiday season's gadget gifts were already shipped in the previous quarter. Portable audio chips should continue growing, but chips for products like home speakers should see a pullback. Also, despite earlier rumors to the contrary, Cirrus says that the working relationship with Apple is on good terms. Rhode went so far as to say, "Rumors of our demise have been greatly exaggerated."
Cirrus is trending up sharply in terms of sales, profit margins, return on capital, and more; the profit from audio chips also provides a stable base from which to launch a similar growth track in the market for power controllers. In short, this is a very healthy business and the stock trades at just 10 times forward earnings (though you might expect forward estimates to be trimmed back a bit after today). That's after a 144% return over the past 12 months but a 36% fall from yearly highs. In my eyes, it could be a while before we see a buy-in opportunity like this again -- if ever.
Whether Cirrus is a winner or a loser in your book, the comments box below is waiting to hear all about it.