With Cirrus’ current market capitalization at only $1.15 billion and a P/E ratio of 10.11 times the current years’ consensus estimate, Apple could pay current shareholders a 100% premium, $2.3 billion, to the existing price and still be making an attractively priced acquisition. Another key aspect of this acquisition would be the potential denial of new leading edge power management products to its competitors as well. This acquisition would not even put a dent in the cash hoard of Apple.
Leadership is all about vision
Market leadership is all about having a clear vision of the future direction of your markets. In consumer electronics, what the consumers see determines in large part the purchasing decisions they make. When it comes to visual graphics on consumer devices, there are few names that would come to mind sooner than NVIDIA Corporation (NASDAQ:NVDA), the maker of the high-end graphics chips used in computers and mobile devices. It is the brand name that is demanded by many serious users of video games played both individually and online.
While the current share price is not inexpensive, it is not ridiculously high and Apple could pay a premium of 25%, about $10.5 billion, to the current shareholders and still only be paying double the projected five year earnings growth rate of 11.9%. It would be hard to think of a more appropriate acquisition for the leader in mobile devices to acquire the leader in graphics chip technology and the acquisition would also give Apple cost advantages over its competitors for these products and early access to new developments in these critical products, helping to assure them of continued market leadership.
Even without an acquisition, Nvidia is a growing company and a leader in its industry, priced at a very reasonable valuation for such a strong brand. It is an attractive investment all on its own when considering the future direction of technology and mobile graphics.
Final thoughts
For investors seeking long-term profits through investments in the technology leaders of today and tomorrow at prices that range from fair to dirt cheap, all three of these businesses would be exceptional candidates for investment. Both Cirrus and Nvidia would be easy, prudent acquisitions for Apple and could deliver quick profits for the shareholder of those businesses.
Ken McGaha owns shares of Cirrus Logic, short June 2013 $19 puts on CRUS and short June 2013 $435 puts on AAPL . The Motley Fool recommends Apple and NVIDIA. The Motley Fool owns shares of Apple and Cirrus Logic.
The article Can Investors Pocket Big Gains From Apple’s “Innovation?” originally appeared on Fool.com and is written by Ken McGaha.
Ken 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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