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Small Cap Play: CRUS

|Includes: Cirrus Logic, Inc. (CRUS)

This week’s play is Cirrus Logic Inc. (NASDAQ:  CRUS).  Cirrus develops high-precision analog and mixed-signal integrated circuits for the audio and energy markets.  The company’s largest customer is Apple Inc., providing it with audio processing chips for the iPod, iPhone, and iPad.  The company has approximately 1,000 patents for more than 700 products, and serves around 2,500 customers across the globe.

Last month, the company was ranked as one of the top 50 best Small and Medium Work Places in America by Great Place to Work Institute.  This list was published in Entrepreneur magazine.  Hopefully, this means that the company should be able to retain its engineers and top employees.  Forbes also ranked Cirrus #34 on its Top 100 Best Small Companies list.  This is Forbes’ annual ranking of the best-performing public companies with under $1 billion in annual revenues.

About half of the company’s net income is driven through its relationship with Apple.  This does pose a larger risk, and I added that into my consideration when calculating the required rate of return.  However, it appears that this business relationship is still strong, and Cirrus products are still in the new Apple products.  As the company expands its product lines in the energy markets and outside its Apple related products, the percentage of net income from Apple should fall overtime.

A review of the financial statements shows that this company is in good financial health.  With attractive multiples (even with the risks factored in) and a current market price below the intrinsic price calculated by my valuation models, I believe CRUS looks attractive below $16 a share. 

Disclosure: I have no positions in any stocks mentioned, and do not intended on initiating a long or short position over the next 72 hours.

Disclaimer: As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.