Please ensure Javascript is enabled for purposes of website accessibility

Here's How Cirrus Logic Shares Fell 11.6% in August

By Anders Bylund - Updated Sep 8, 2020 at 5:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The designer of audio chips and power controllers used in iPhones started out strong but stumbled over a related speed bump.

What happened

Shares of analog and mixed-signal semiconductor designer Cirrus Logic (CRUS -1.16%) fell 11.6% in August, according to data from S&P Global Market Intelligence. The month started with an 8% rise in anticipation of a strong first-quarter earnings report. The report itself was indeed fantastic, but investors were left frustrated by modest guidance for the next quarter.

So what

Cirrus Logic's sales rose 2% year over year to $243 million, far ahead of Wall Street's $225 million consensus estimates. Earnings rose 51% to $0.53 per share, also above the Street's $0.30 target. But the midpoint of management's second-quarter revenue guidance stopped at $310 million, slightly below the then-current analyst projection of roughly $315 million. On the earnings call, CFO Thurman Case conceded that his company's largest customer has said that the next-generation iPhone is running a few weeks late, and that assumption was included in Cirrus Logic's guidance calculations.

Two hands give thumbs-up and thumbs-down signs in front of several uncut silicon wafers.

Image source: Getty Images.

Now what

Moreover, Apple (AAPL -0.61%) is planning to get rid of analog headphone functions altogether in the iPhone line, which would reduce the number of chips that Cirrus Logic supplies to each phone. On the other hand, Apple has ordered a new power conversion chip from Cirrus, a custom product that is "not something that exists today," in the words of CEO Jason Rhode.

"It's kind of a new thing that a customer thinks they are going to drive some value from," Rhode said, adding that it would be difficult to provide an "appropriate clue" about it.

So Cirrus seems to have some exciting new iPhone content on hand that might play into the 2021 launch cycle rather than the iPhone event that Apple has planned for Sept. 15. Investors can be impatient, which is why Cirrus shares started sliding after the first-quarter report.

Personally, I think that Cirrus Logic's stock is taking an overly harsh punishment for a short-term delay that shouldn't damage the company's business in the long run. And I can't wait to hear exactly what iPhone features that unheard-of new power controller might support next year.

Given this solid long-term outlook, Cirrus looks like a buy at these low prices, trading at just 15 times free cash flow and 20 times earnings.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cirrus Logic, Inc. Stock Quote
Cirrus Logic, Inc.
CRUS
$86.68 (-1.16%) $-1.02
Apple Inc. Stock Quote
Apple Inc.
AAPL
$173.08 (-0.61%) $-1.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.