Don’t Miss the Incredible Return Potential of Cirrus Logic, Inc. (CRUS)

Page 1 of 2

We all know that we live in a society where our lives and increasingly high standard of living are driven by rapid improvements in technology.  However, it is rare that, as investors, we have the opportunity to hold positions in the leading businesses in this arena, unless we are willing to pay exorbitant multiples of most standard metrics in order to acquire the shares.  As one who is only willing to buy what I believe to be substantially undervalued assets with enormous upside, created by widespread misperceptions in the broad market, this is simply not an arena where I normally allocate a great deal of capital.  However, when existing shareholders are willing to give away future earnings of a solid business that is in the process of effectively dealing with potentially problematic issues, I am willing to look hard at the opportunity.  I have found what I believe to be that exact situation with Cirrus Logic, Inc. (NASDAQ:CRUS) today; a leader in its industry, which is supplying high precision analog and digital signal processing components to the audio and energy industries.

Cirrus Logic, Inc. (NASDAQ:CRUS)

As of the market close yesterday, the price to earnings (PE) ratio for the current year is approximately 7.5, based on the consensus estimate of $3.26/share for the year ending March 2013.   With the consensus for 5-year annual earnings growth at 15%, this stock could easily support a stock price of $37 to $40 per share.  But this one gets even better!  The estimates for the current year (ending 3/13) and 2014 have been rising in the last 90 days!

Cirrus Logic has no long-term debt and only $138.95 million in total liabilities.  Against this amount, the business is holding $148.17 million in cash and short-term investments, $170.68 million in receivables and $135.02 million in inventory!  If you value the inventories and receivables at only 50%, the company covers ALL of its liabilities and still has $162 million dollars left over.  Considering Apple Inc (NASDAQ:AAPL) accounts for 90% of the company’s sales, it is highly unlikely that they will not collect almost all of their receivables and sell the vast majority of their existing inventory………unless you believe Apple is about to go out of business. In a purely financial sense, this one is a rock!  As they say in the infomercials:  “BUT WAIT!  THERE’S MORE!”

This is also a business that knows how to allocate its resources in a very efficient manner.  Over the last five years, they have produced annualized returns on equity, assets and capital of 22.5%, 19.1% and 21.9% respectively!  Those are exceptional numbers in today’s economic environment and they show that management doesn’t tolerate the waste of shareholder’s money and is very talented when it comes to generating attractive returns on that money.  This is a trait I love to see and is much too difficult to find.

Its two main publicly traded competitors are Texas Instruments Incorporated (NASDAQ:TXN) and STMicroelectronics N.V. (ADR) (NYSE:STM) . Based upon the same metrics used above, the numbers for these two businesses respectively are: ROE: 20.06% & -4.02%, respectively; ROA: 14.3% & -5.6%, respectively; ROC: 16.9% & -7.3%, respectively.  Cirrus compares very favorably with Texas Instruments on these metrics and they both are far superior to STM.  Cirrus is also allocating substantial amount of their free cash flow to retire outstanding shares of stock.  This practice quietly increases the value of the remaining shares, but is not something that typically shows up quickly in the stock price and creates opportunities for bargain hunters before the average investor catches on.

One last little thing about this business, they have maintained an average net profit margin of 23.8% over the last five years!  How many businesses do you know have accomplished that feat in the economic environment we have seen since 2007.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!