Play the Rebound of Apple with Cirrus Logic

Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With Apple (NASDAQ: AAPL) falling from favor and its share price down for the last week, month, quarter, six months and year, some investors are naturally looking to play the rebound. One of the best ways to profit from that could be to go long on Cirrus Logic (NASDAQ: CRUS), which has fallen due to Apple being its biggest customer.

Like Apple, the share price of Cirrus Logic is off for the last month, quarter, and six months. That is due to the chips of Cirrus Logis being in almost every iProduct.  The chart below shows how the share price of Cirrus has followed the decline of Apple’s since last Autumn. Both Apple and Cirrus Logic are trading below the 20-, 50-, and 200-day moving average for each.

<img src="/media/images/user_15598/aplcirrus_large.jpg" />
 

Also like Apple, the balance sheet and income statement of Cirrus Logic are stellar, although the stock performance has not been. Neither company has any debt. The quick ratio for Cirrus Logic is 1.90, evincing that any short term debt can be easily handled. That only adds to the strong appeal of Cirrus for growth and value investors.

For growth investors, the price-to-earnings growth ratio for Cirrus Logic is 0.47. Legendary investor Peter Lynch considers this to be one of the most important financial indicators for a company. A fair value for the price-to-earnings growth ratio is 1 with the lower the better.  For Apple, the price-to-earnings growth ratio is 0.56.

Other strong growth indicators include a sales rate increasing by more than 150% on a quarterly basis. That is a bullish trend as the sales growth rate for the last five years is 18.55%. For the next five years, the earnings-per-share growth rate is projected to rise by 25.37%. Net income is also soaring from the quarter from a year ago. The revenue growth for Cirrus is much stronger than the industry average.

Value investors should like the return-on-equity (ROE) of 33.48%. That is about twice the average for a member company on the Standard & Poor’s 500 Index. The price-to-earnings ratio of 11.75 that is expected to fall to 7.19 next year is very attractive too for value investors.  

The income statement and balance sheet of Cirrus Logic are also alluring to both growth and value investors. The profit margin is 22.57%. For growth investors, earnings-per-share (EPS) are soaring on a quarterly basis. Over the next five years, EPS is projected to rise by another 25.37%. That will improve key indicators for both growth and value investors.

The table below shows how Cirrus Logic compares favorably with other tech stocks that are down in recent market action.

<table> <tbody> <tr> <td> <p><strong>Metric</strong></p> </td> <td> <p><strong>Cirrus Logic</strong></p> </td> <td> <p><strong>Apple</strong></p> </td> <td> <p><strong>Intel</strong></p> </td> <td> <p><strong>Microsoft</strong></p> </td> </tr> <tr> <td> <p>Price-to-Earnings-Growth Ratio</p> </td> <td> <p>0.47</p> </td> <td> <p>0.56</p> </td> <td> <p>0.85</p> </td> <td> <p>1.84</p> </td> </tr> <tr> <td> <p>Price-to-Earnings Ratio</p> </td> <td> <p>11.75</p> </td> <td> <p>10.58</p> </td> <td> <p>9.97</p> </td> <td> <p>15.41</p> </td> </tr> <tr> <td> <p>Forward Price-to-Earnings Ratio</p> </td> <td> <p>7.19</p> </td> <td> <p>9.17</p> </td> <td> <p>10.21</p> </td> <td> <p>8.87</p> </td> </tr> <tr> <td> <p>Price-to-Book Ratio</p> </td> <td> <p>3.22</p> </td> <td> <p>2.66</p> </td> <td> <p>2.07</p> </td> <td> <p>3.24</p> </td> </tr> <tr> <td> <p>Price-to-Sales Ratio</p> </td> <td> <p>2.49</p> </td> <td> <p>3.44</p> </td> <td> <p>1.98</p> </td> <td> <p>3.22</p> </td> </tr> <tr> <td> <p>Six Month Share Price Performance</p> </td> <td> <p>(27.64%)</p> </td> <td> <p>(25.17%)</p> </td> <td> <p>(18.78%)</p> </td> <td> <p>(6.35%)</p> </td> </tr> </tbody> </table>

Source: Finviz

The management of Cirrus Logic felt the stock was attractively back in November, when a $200 million share buyback program was announced. Since that time, the share price has fallen by double digits. When Apple shares are priced rationally again, there should be a rebound in the shares of Cirrus Logic as the bullish sentiment will spread. In addition, seasonally strong quarters are approaching for Cirrus Logic.

Westfield Capital Management disclosed in its most recent 13F filing that it has increased its holdings of Cirrus.  Even though more than 90% of its revenue comes from Apple, there is still strong sentiment that a rebound will come for Cirrus Logic.  Now trading around $27.80, the mean analyst target price for Cirrus Logic over the next year is $41.97.


Peter Harengel has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Cirrus Logic. Try any of our Foolish newsletter services free for 30 days. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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