Please ensure Javascript is enabled for purposes of website accessibility

Apple and Cirrus Logic Are Both Absurdly Cheap at Their New Lows

By Evan Niu, CFA – Apr 17, 2013 at 6:30PM

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

Both the Mac maker and audio codec maker have tapped fresh 52-week lows, bringing their valuations well into the bargain bin. How absurdly cheap are Apple and Cirrus Logic?

With Apple (AAPL 3.29%) and Cirrus Logic (CRUS 3.42%) holding hands today as they dive into new 52-week lows, how cheap have shares gotten? Answer: Very.

In sickness and in health
Both companies have ridden high together over the past five years, and likewise the couple has fallen without leaving each other's side. At least they've still got each other, even if they've both given up substantial gains over the past six months.

AAPL Chart

AAPL data by YCharts.

Starting with the Mac maker, shares now trade at just 9.2 times earnings. That's almost half of the 17.9 times earnings that the broader market currently trades at. If you back out the $146 per share in cash that Apple was sitting on at the end of December, that figure falls to 5.8.

Taking it a bit further, Apple has no doubt added even more dollars to its money mountain over the past three months. Even after paying out its dividend and buying back some shares, it's entirely feasible for its cash position to grow by another $10 billion this quarter (which investors won't find out about until next Tuesday).

Earnings are expected to decline this quarter due to the tough year-over-year comparison. Analysts are expecting earnings per share of $10.13. Apple doesn't provide specific EPS guidance anymore, but based on the metrics it does issue, the company is expecting roughly $9.18 per share in earnings, according to my calculations. Assuming $10 billion in cash added and $9.18 EPS, Apple would still be trading at six times earnings (excluding cash).

That type of valuation is for companies on their deathbeds, not companies at the top of their game facing moderate deceleration.

Even Cirrus Logic's valuation is in the bargain bin. The audio chip maker's earnings multiple has now dipped below 8 on its preliminary earnings figures, which were admittedly bad. Still, the company expects gross margin to recover to 50% to 52% next quarter after working through the inventory charges, and its revenue guidance of $150 million to $170 million for the June quarter calls for 62% growth at the midpoint.

That level of growth isn't what most would typically expect from a company trading at less than eight times earnings. The speed bump today will prove to be a short-term lull ahead of a strong product cycle refresh from Cirrus Logic's biggest customer. When Apple inevitably rebounds on new iPhones and iPads, expect Cirrus to do likewise.

Both companies report earnings next week. Cirrus has mostly showed its hand; it probably won't have any big surprises. Apple, on the other hand, has a lot of uncertainty surrounding it. If iPhone sales are soft and June guidance leaves something to be desired, Apple could easily head lower -- further into the bargain bin.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Cirrus Logic. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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

Apple Stock Quote
Apple
AAPL
$145.81 (3.29%) $4.64
Cirrus Logic Stock Quote
Cirrus Logic
CRUS
$73.39 (3.42%) $2.43

*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
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

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.