Cirrus Logic: The Strong Run Will Continue
Chipmaker Cirrus Logic (CRUS) has made a remarkable recovery on the stock market this year, with its shares gaining almost 25% so far. The company's impressive run on the market can be attributed to its impressive top and bottom line growth in recent quarters. For instance, last quarter, Cirrus' top line jumped 85%, while its net income went up 53% from the year-ago quarter.
Cirrus reported robust financial results on the back of robust demand for its smart codecs, amplifiers, and several other new products. Going forward, the company sees strong demand for its innovative audio and video solutions to accelerate growth going into fiscal year 2017.
An increasing end market
Cirrus has significant opportunity for expansion of its content in mobile devices with the estimated content per device to grow to approximately $4.00 compared to an earlier content per device of nearly $1.25. MEMS microphones are estimated to grow up to four per device at an average selling price in the range of approximately $0.20 to $0.30. Smart Codec, along with embedded software, is anticipated to be nearly one per device at ASPs in about $2.50 to $3.50 range. Further, the implementation of audio amplifiers is expected to reach up to two per device at average ASPs in nearly $0.50 to $0.75 range.
Audio and voice features are expanding in differentiated value and sophistication. Customers are increasingly demanding extremely low power mixed signal audio solutions. As a result, audio and video features are continuously expanding in high-end devices and are starting to move into the mid-range. Moreover, software is increasingly becoming a key element of the general audio and video solution.
All in all, the total dollar market opportunity is expected to grow at a CAGR of 23% from $2.9 billion in 2013 to $8.1 billion in the fiscal year 2018. Further, audio/video technology is expanding beyond smartphones and tablets to connected car and home segment, wearables, headphones, and headsets. This means that the total addressable market for Cirrus Logic is expected to expand at an impressive pace going forward, which means that the company will be able to sustain its impressive rate of growth going forward.
A strong financial position will aid its growth
Cirrus is focused on expanding its products and services being offered to customers as it is targeting diversified end markets such as smartphones, tablets, and wearables. This diversified business expansion strategy is expected to benefit the chip maker in the long run. More importantly, Cirrus has enough cash to continue making investments in its products.
For instance, Cirrus's cash flow from operations has increased at a CAGR of 45% from just $25 million in the fiscal year 2010 to a significant $164 million in the fiscal year 2015. This has encouraged the company to increase its investments in research and development, invest in acquisitions, share repurchases, debt repayments, and infrastructure enhancements.
Hence, Cirrus is well-positioned to continue improving its business going forward. Additionally, the company has an impressive valuation, which is another reason why investors can consider investing in the stock for the long run. Cirrus has trailing P/E and forward P/E ratios of 24.64 and 10.53, respectively, which is less than the industry's average P/E of 19.46 on a forward P/E basis.
In addition, the PEG ratio of 0.58 indicates that the stock is undervalued. Thus, considering its strong prospects and improving financial performance, Cirrus Logic is a buy for the long run.