Cirrus Logic (CRUS -0.26%) started the year flying high as the success of Apple's (AAPL 0.64%) iPhone 12 models rubbed off on the chipmaker—but the audio chip specialist's shares have lost a lot of ground over the past couple of months.
Cirrus stock's steep decline is a tad surprising, as the company reported a solid set of results at the beginning of February. What's more, recent chatter about Apple's potential production targets suggests that Cirrus may be able to sustain its terrific momentum, as the latest iPhone lineup is seeing the strongest demand trajectory since 2014.
Cirrus' stock market fortunes could start changing sooner rather than later, however, as Apple usually releases its fiscal second-quarter results in the month of April. The iPhone maker produced 87% of Cirrus' revenue in the fiscal third quarter that ended in December 2020. This heavy reliance is going to be a massive tailwind for Cirrus, as Apple's results and outlook are going to give the former a huge shot in the arm. Let's see how.
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Cirrus Logic's impressive growth is here to stay
Cirrus Logic's revenue shot up 30% year-over-year during the quarter that ended in December 2020, while adjusted earnings shot up 51% over the prior-year period. The chipmaker benefited from Apple's strong holiday quarter, which saw a 17% year-over-year increase in iPhone sales on the back of huge iPhone 12 demand.
The good news for Cirrus Logic is that iPhone 12 demand has remained strong even after the holiday period. Supply chain checks by Wedbush analyst Daniel Ives indicate that Apple could build between 56 million and 62 million iPhone units this quarter, followed by an estimated 40 million in the June quarter. Japanese financial daily Nikkei has a similar forecast, expecting Apple to produce 96 million units in the first half of 2021 -- a jump of 30% over the prior-year period.
Such a scenario bodes well for Cirrus Logic given its close ties with Apple. The iPhone 12 launch has already lifted Cirrus Logic from a financial standpoint, and the build forecasts suggest that the chipmaker could be on track to maintain its high growth rates and exceed its own expectations. The company originally called for revenue between $280 million and $320 million for the recently concluded fiscal fourth quarter, an increase of just 7.4% over the year-ago quarter's revenue at the midpoint.
However, Cirrus' actual quarterly revenue could be toward the higher end of that forecast range, assuming the strong jump in iPhone production that's forecasted for the first half of the year actually plays out. What's more, Apple is expected to finish 2021 with record iPhone sales of 250 million units as per Wedbush, which would be its best showing since the iPhone 6 launch that helped the company move 231 million units.
Additionally, Apple's initial production of its 2021 iPhone lineup is expected to be much higher compared to that of the iPhone 12. Supply chain rumors indicate that the smartphone giant could make 100 million units of the rumored iPhone 13 in 2021, compared to 80 million units of the iPhone 12 last year.
All of this indicates that Cirrus Logic could keep getting better as the year progresses, which is why it would be a good time for investors to buy this potential growth stock.
The stock is on sale right now
Investors can now buy Cirrus Logic shares at an attractive valuation thanks to its recent dip. The stock is trading at less than 25 times trailing earnings, which is lower than last year's average multiple of nearly 32. And a forward price-to-earnings (P/E) ratio of just 17 indicates a nice jump in Cirrus' bottom line. In fact, analysts have raised Cirrus' earnings forecast for the current and the forthcoming fiscal years since the iPhone 12 hit the market in October last year, and their estimates have continued to climb in 2021.
CRUS EPS Estimates for Current Fiscal Year data by YCharts
All of this indicates that Cirrus Logic shares could break out once again as the prospects of its largest customer turn up, making it an ideal stock for investors looking for a mix of value and growth.
