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Congratulations: This Growth Stock Is on Sale Today!

By Anders Bylund – Updated Apr 6, 2017 at 11:31AM

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A small analog/digital signal specialist goes on fire sale for all the wrong reasons.

Media-processor chip designer Silicon Laboratories (Nasdaq: SLAB) just proved again why issuing guidance is a fool's errand (with a lower-case F).

Just like Texas Instruments (NYSE: TXN) did last week, the longtime Stock Advisor pick met or beat expectations for the second quarter; sales stopped at $137 million for a dizzying 30% year-over-year gain, and GAAP earnings more than doubled to $0.44 per share. Yet the stock opened some 6% lower this morning and has been vacillating between  "damp squib" and "downright depressing" ever since. And why is that? Because the next-quarter revenue guidance topped out where the Wall Street crowd had planted their average signposts, with the midpoint of management's sales range falling $2.7 million below that.

I call shenanigans, because conservative projections get punished now while aggressive ones bite you back later on when you barely meet your own targets. Texas Instruments updates its guidance too often; Apple (Nasdaq: AAPL) never sets a target too high to absolutely crush it; Google (Nasdaq: GOOG) doesn't do guidance at all; and Silicon Labs takes the somewhat conservative route of just guesstimating sales. Even that is too much, I say. The proof is in the pudding -- and it's blood-stained black pudding today.

Ignore the market action, and Silicon Labs becomes much less scary. The company ships chips into attractive sectors such as smartphones and home entertainment systems, steadily expanding its reach into adjacent markets. This diversity serves to stabilize this small-cap company's results as the waning fortunes of one target sector often are counterbalanced by another one waxing. And when Silicon Labs fires on all cylinders, the results can be very impressive. That's what just happened, and the market ignored it.

So in my view, management's guidance gave us a nice discount on a generally attractive stock today. Share prices are back to where they were a year ago, despite robust improvements in sales volume and profitability. Sector peers of comparable size tend to be more volatile than Silicon Labs thanks to more single-minded end-market aims; Cirrus Logic (Nasdaq: CRUS) has ridden audio chip success to a 250% share return in the last year. Cirrus' results have been stunning and it deserves market success, but at the same time Silicon doesn't deserve the middling share prices gains it has seen.

But Silicon Labs remains an unbeatable value with a rich mix of stable operations and immense opportunities ahead. This is the time to be a major player in consumer electronics of various kinds, just as the entire sector moves into a new era of digital everything.

My "outperform" CAPS rating of Silicon Labs is hurting my All-Star status right now, but this too shall pass. I invite you to cast your CAPS lot with me and the analog/digital rascals from Austin -- it only takes a couple of clicks.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Cypress Semiconductor and Google are Motley Fool Rule Breakers recommendations. Apple and Silicon Laboratories are Motley Fool Stock Advisor picks. The Fool owns shares of Google. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$98.74 (-1.40%) $-1.40
Apple Inc. Stock Quote
Apple Inc.
AAPL
$150.43 (-1.51%) $-2.31
Texas Instruments Incorporated Stock Quote
Texas Instruments Incorporated
TXN
$161.29 (-0.82%) $-1.33
Cirrus Logic, Inc. Stock Quote
Cirrus Logic, Inc.
CRUS
$75.52 (-1.82%) $-1.40
Silicon Laboratories Inc. Stock Quote
Silicon Laboratories Inc.
SLAB
$122.94 (-0.07%) $0.08

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

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