Cirrus Logic Will Make Sense of Your Net Worth
But does rapid EPS growth mean Cirrus Logic stock is a sensible investment? Here are three reasons to consider it:
- Very low valuation. Cirrus Logic 's price-to-earnings-to-growth ratio of 0.25 (where a PEG of 1.0 is considered fairly priced) means its stock price is cheap. It currently has a P/E of 5.3, and its earnings per share are expected to grow 21.4% to $1.38 in fiscal 2013.
- Increasing sales and profits -- and decent balance sheet. Cirrus Logic has been increasing sales and profits. Its revenue has increased at a 19.4% annual rate from $182 million (2007) to $370 million (2011) while its net income has soared at a 64.3% rate from $28 million (2007) to $204 million (2011) — yielding a whopping 55% net profit margin due in part to a big tax credit. Its cash has fallen but is has almost no debt -- a mere $288,000. Specifically, its cash fell at a 7.2% annual rate from $266 million (2007) to $197 million (2011).
- Out-earning its cost of capital. Cirrus Logic is earning more than its cost of capital – and it’s making big progress. How so? It’s producing positive EVA Momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In 2011, Cirrus Logic 's EVA momentum was 16%, based on 2010 revenue of $221 million, and EVA that rose from 2010's $3 million to 2011's $39 million, using a 10% weighted average cost of capital. One reason not to invest:
- Poor earnings reports. Cirrus Logic has only been able beat analysts' expectations in two out of its past five earnings reports.