With a market capitalization of $1.1 billion, Cirrus is understandably a much smaller company — but with all the more potential to make big gains on the market.
| Indicator | Cirrus Logic | Texas Instruments | Qualcomm |
|---|---|---|---|
| Market Cap | $1.1 billion | $38.7 billion | $105.6 billion |
| Price/Earnings ttm | 8.7 | 21.3 | 17.2 |
| Price/Book | 2.0 | 3.5 | 2.8 |
| Net Income Growth (3 Yr Avg.) | 52.7 | 6.2 | 56.6 |
| Revenue Growth(3 Yr Avg %) | 54.2 | 15.7 | 22.4 |
| Dividend Yield , % | – | 2.50 | 1.80 |
| Return on Equity | 26.9 | 16.9 | 18.0 |
| Debt/Equity | – | 0.4 | – |
| Current Price | $16.82 | $34.59 | $60.70 |
*Data from Morningstar on June 30
In a straight out comparison with peers, Cirrus Logic and Qualcomm seem to be undervalued when compared to the industry average (21.6). Cirrus Logic is affordable and has growth potential.
The company does not provide any dividend while Texas Instruments and Qualcomm provide their shareholders with a solid dividend. Cirrus Logic has no debt and is in a very comfortable liquidity position. If required, the company can take on loans to finance its increasing R&D spending.
Prospects
Cirrus Logic currently has a share repurchase program. Its over-reliance on Apple Inc. (NASDAQ:AAPL) has hurt it badly since October 2012. Cirrus Logic generated almost 85% of its total revenue just from one client — Apple Inc. (NASDAQ:AAPL). However, with a welcome reception given to iOS 7, many analysts believe Apple has addressed the Achilles’ heel for its products — the aging software. With a possible launch of two new iPhones in the last quarter of 2013, this could be a very bright opportunity for investors to buy into Cirrus Logic.
Furthermore, as Apple Inc. (NASDAQ:AAPL) introduces trade-in programs and efforts to boost sales of its products, Cirrus Logic stands to benefit. The company provides a low cost option for taking a risk with the world’s most cash rich company — Apple.
I see this as a calculated risk and believe that Apple’s fortunes hold the key to Cirrus Logic’s short-term fate. In the long-term, however, I expect the company to decrease its reliance on Apple for revenue, especially since the Cupertino-based giant is known for playing hard ball with its suppliers.
Bottom line
With Apple probably making moves to boost sales, Cirrus Logic might not have to go through a massive inventory write-down as demand for the iPhone and the iPad picks up. My advice: Buy Cirrus Logic because of its cheap price and solid prospects.
The article Can This Apple Supplier Make You Really Rich? originally appeared on Fool.com is written by Marina Avilkina.
Marina Avilkina has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, Cirrus Logic, and Qualcomm. Marina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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